On January 1, 20X6, Clock Inc. of Vancouver purchased 75% of the outstanding shares of Time Limited in London, England. Time Limited's statements of financial position and statements of comprehensive income and changes in equity-retained earnings section for the year ended December 31, 20X7, are below. Time Limited Statement of Financial Position December 31, 20X7 (in thousands of £ ′ s ) Assets 20 × 7 20 × 6 Cash 50 20 Accounts receivable 575 280 Inventories 825 650 Equipment, net 2 , 670 ‾ 2 , 937 ‾ Total assets 4 , 120 ‾ 3 , 887 ‾ Liabilities Accounts payable 465 395 Bonds payable 1 , 290 1 , 290 Common shares 1 , 200 1 , 200 Retained earnings 1 , 165 ‾ 1 , 002 ‾ Total liabilities and shareholders’ equity 4 , 120 ‾ 3 , 887 ‾ \begin{array}{c} ext { Time Limited}\ ext { Statement of Financial Position}\ ext { December 31, 20X7}\ ext { (in thousands of £^{\prime} s )}\\\begin{array}{|l|r|r|}\hline ext { Assets } & 20 imes 7 & 20 imes 6 \\hline ext { Cash } & 50 & 20 \\hline ext { Accounts receivable } & 575 & 280 \\hline ext { Inventories } & 825 & 650 \\hline ext { Equipment, net } & \underline{2,670} & \underline{2,937} \\hline ext { Total assets } & \underline{4,120} & \underline{3, 887 }\\hline\\hline ext { Liabilities } & & \\hline ext { Accounts payable } & 465 & 395 \\hline ext { Bonds payable } & 1,290 & 1,290 \\hline ext { Common shares } & 1,200 & 1,200 \\hline ext { Retained earnings } & \underline{1,165} & \underline{1,002} \\hline ext { Total liabilities and shareholders ' equity } & \underline{4,120} & \underline{3,887} \\hline\end{array}\end{array} Time Limited Statement of Financial Position December 31, 20X7 (in thousands of £ ′ s ) Assets Cash Accounts receivable Inventories Equipment, net Total assets Liabilities Accounts payable Bonds payable Common shares Retained earnings Total liabilities and shareholders’ equity 20 × 7 50 575 825 2 , 670 4 , 120 465 1 , 290 1 , 200 1 , 165 4 , 120 20 × 6 20 280 650 2 , 937 3 , 887 395 1 , 290 1 , 200 1 , 002 3 , 887 Time Limited Statement of Comprehensive Income Year Ended December 31, 20X7 (in thousands of £ ′ s ) £ Sales 2 , 170 ‾ Cost of goods sold 1 , 203 Depreciation expense 267 Interest expense 80 Other expenses 407 1 , 957 ‾ Comprehensive income 213 \begin{array}{c} ext { Time Limited}\ ext { Statement of Comprehensive Income}\ ext { Year Ended December 31, 20X7}\ ext { (in thousands of £^{\prime} s )}\\\begin{array}{|l|r|}\hline & £ \\hline ext { Sales } & \underline{2,170} \\hline ext { Cost of goods sold } & 1,203 \\hline ext { Depreciation expense } & 267 \\hline ext { Interest expense } & 80 \\hline ext { Other expenses } & 407 \\hline & \underline{1,957} \\hline ext { Comprehensive income } & 213\\hline\end{array}\end{array} Time Limited Statement of Comprehensive Income Year Ended December 31, 20X7 (in thousands of £ ′ s ) Sales Cost of goods sold Depreciation expense Interest expense Other expenses Comprehensive income £ 2 , 170 1 , 203 267 80 407 1 , 957 213 Time Limited Statement of Changes in Equity-Partial-Retained earnings section Year Ended December 31, 20X7 (in thousands of £ ′ s ) £ Retained earnings-January 1 , 20 X 7 1 , 002 Comprehensive income for the year 213 Dividends paid ( 50 ) Retained earnings - December 31 , 20 X 7 1 , 165 \begin{array}{c} ext {Time Limited}\ ext {Statement of Changes in Equity-Partial-Retained earnings section}\ ext {Year Ended December 31, 20X7}\ ext {(in thousands of £ ^{\prime} s )}\\\begin{array}{|l|r|}\hline & £ \\hline ext { Retained earnings-January } 1,20X7 & 1,002 \\hline ext { Comprehensive income for the year } & 213 \\hline ext { Dividends paid } & (50) \\hline ext { Retained earnings - December } 31,20X7 & 1,165\\hline\end{array}\end{array} Time Limited Statement of Changes in Equity-Partial-Retained earnings section Year Ended December 31, 20X7 (in thousands of £ ′ s ) Retained earnings-January 1 , 20 X 7 Comprehensive income for the year Dividends paid Retained earnings - December 31 , 20 X 7 £ 1 , 002 213 ( 50 ) 1 , 165 Additional information:1. Time was incorporated on January 1, 20X3, when it acquired all its equipment for £4,005,000 and issued its 10-year bonds payable.2. Time's purchases and sales occurred evenly over the year. Inventories on hand at December 31, 20X6, and December 20X7 were purchased evenly over the last quarter of 20X6 and 20X7, respectively. Inventories as at December 31, 20X7, were £650,000.3. Dividends were paid on March 31, 20X7.4. Foreign exchange rates are as follows: January 1 , 20 X 3 £ 1 = C $ 1.95 January 1, 20X6 £ 1 = C $ 1.85 Average for Oct to Dec, 20X6 £ 1 = C $ 1.64 Average for 20X6 £ 1 = C $ 1.73 December 31 , 20 X 6 / January 1 , 20 X 7 £ 1 = C $ 1.67 March 31 , 20 X 7 £ 1 = C $ 1.61 Average for Oct to Dec, 20 X 7 £ 1 = C $ 1.55 Average for 20 X 7 £ 1 = C $ 1.57 December 31.20 X 7 £ 1 = C $ 1.52 \begin{array}{ll} ext { January } 1,20X3 & £ 1=C \$ 1.95 \ ext { January 1, 20X6 } & £ 1=C \$ 1.85 \ ext { Average for Oct to Dec, 20X6 } & £ 1=C \$ 1.64 \ ext { Average for 20X6 } & £ 1=\mathrm{C} \$ 1.73\ ext { December } 31,20X6 / ext { January } 1,20X7 & £ 1=C \$ 1.67 \ ext { March } 31,20X7 & £ 1=C \$ 1.61 \ ext { Average for Oct to Dec, } 20X7 & £ 1=C \$ 1.55 \ ext { Average for } 20X 7 & £ 1=C \$ 1.57 \ ext { December } 31.20X7 & £ 1=C \$ 1.52\end{array} January 1 , 20 X 3 January 1, 20X6 Average for Oct to Dec, 20X6 Average for 20X6 December 31 , 20 X 6/ January 1 , 20 X 7 March 31 , 20 X 7 Average for Oct to Dec, 20 X 7 Average for 20 X 7 December 31.20 X 7 £1 = C $1.95 £1 = C $1.85 £1 = C $1.64 £1 = C $1.73 £1 = C $1.67 £1 = C $1.61 £1 = C $1.55 £1 = C $1.57 £1 = C $1.52 Required:Translate Time's statement of comprehensive income for the year ended December 31, 20X7 into Canadian dollars assuming its functional currency is Canadian dollars. Calculate the translation gain or loss arising in 20X7.

Question

On January 1, 20X6, Clock Inc. of Vancouver purchased 75% of the outstanding shares of Time Limited in London, England. Time Limited's statements of financial position and statements of comprehensive income and changes in equity-retained earnings section for the year ended December 31, 20X7, are below.    Time Limited  Statement of Financial Position  December 31, 20X7  (in thousands of  £ ′ s )  Assets  20 × 7 20 × 6  Cash  50 20  Accounts receivable  575 280  Inventories  825 650  Equipment, net  2 , 670 ‾ 2 , 937 ‾  Total assets  4 , 120 ‾ 3 , 887 ‾  Liabilities   Accounts payable  465 395  Bonds payable  1 , 290 1 , 290  Common shares  1 , 200 1 , 200  Retained earnings  1 , 165 ‾ 1 , 002 ‾  Total liabilities and shareholders’ equity  4 , 120 ‾ 3 , 887 ‾ \begin{array}{c}	ext { Time Limited}\	ext { Statement of Financial Position}\	ext { December 31, 20X7}\	ext { (in thousands of   £^{\prime}  s )}\\\begin{array}{|l|r|r|}\hline 	ext { Assets }  &  20 	imes 7  &  20 	imes 6 \\hline 	ext { Cash }  &  50  &  20 \\hline 	ext { Accounts receivable }  &  575  &  280 \\hline 	ext { Inventories }  &  825  &  650 \\hline 	ext { Equipment, net }  &  \underline{2,670}  &  \underline{2,937} \\hline 	ext { Total assets }  &  \underline{4,120}  &  \underline{3, 887 }\\hline\\hline 	ext { Liabilities }  &   &  \\hline 	ext { Accounts payable }  &  465  &  395 \\hline 	ext { Bonds payable }  &  1,290  &  1,290 \\hline 	ext { Common shares }  &  1,200  &  1,200 \\hline 	ext { Retained earnings }  &  \underline{1,165}  &  \underline{1,002} \\hline 	ext { Total liabilities and shareholders '  equity }  &  \underline{4,120}  &  \underline{3,887} \\hline\end{array}\end{array}  Time Limited  Statement of Financial Position  December 31, 20X7  (in thousands of  £ ′ s )  Assets   Cash   Accounts receivable   Inventories   Equipment, net   Total assets   Liabilities   Accounts payable   Bonds payable   Common shares   Retained earnings   Total liabilities and shareholders’ equity  ​ 20 × 7 50 575 825 2 , 670 ​ 4 , 120 ​ 465 1 , 290 1 , 200 1 , 165 ​ 4 , 120 ​ ​ 20 × 6 20 280 650 2 , 937 ​ 3 , 887 ​ 395 1 , 290 1 , 200 1 , 002 ​ 3 , 887 ​ ​ ​ ​  Time Limited  Statement of Comprehensive Income  Year Ended December 31, 20X7  (in thousands of  £ ′ s ) £  Sales  2 , 170 ‾  Cost of goods sold  1 , 203  Depreciation expense  267  Interest expense  80  Other expenses  407 1 , 957 ‾  Comprehensive income  213 \begin{array}{c}	ext { Time Limited}\	ext { Statement of Comprehensive Income}\ 	ext { Year Ended December 31, 20X7}\	ext { (in thousands of   £^{\prime}  s )}\\\begin{array}{|l|r|}\hline  &  £ \\hline 	ext { Sales }  &  \underline{2,170} \\hline 	ext { Cost of goods sold }  &  1,203 \\hline 	ext { Depreciation expense }  &  267 \\hline 	ext { Interest expense }  &  80 \\hline 	ext { Other expenses }  &  407 \\hline  &  \underline{1,957} \\hline 	ext { Comprehensive income }  &  213\\hline\end{array}\end{array}  Time Limited  Statement of Comprehensive Income  Year Ended December 31, 20X7  (in thousands of  £ ′ s )  Sales   Cost of goods sold   Depreciation expense   Interest expense   Other expenses   Comprehensive income  ​ £ 2 , 170 ​ 1 , 203 267 80 407 1 , 957 ​ 213 ​ ​ ​ Time Limited Statement of Changes in Equity-Partial-Retained earnings section Year Ended December 31, 20X7 (in thousands of  £ ′ s ) £  Retained earnings-January  1 , 20 X 7 1 , 002  Comprehensive income for the year  213  Dividends paid  ( 50 )  Retained earnings - December  31 , 20 X 7 1 , 165 \begin{array}{c}	ext {Time Limited}\	ext {Statement of Changes in Equity-Partial-Retained earnings section}\	ext {Year Ended December 31, 20X7}\	ext {(in thousands of  £ ^{\prime}  s )}\\\begin{array}{|l|r|}\hline  &  £ \\hline 	ext { Retained earnings-January } 1,20X7  &  1,002 \\hline 	ext { Comprehensive income for the year }  &  213 \\hline 	ext { Dividends paid }  &  (50) \\hline 	ext { Retained earnings - December } 31,20X7  &  1,165\\hline\end{array}\end{array} Time Limited Statement of Changes in Equity-Partial-Retained earnings section Year Ended December 31, 20X7 (in thousands of  £ ′ s )  Retained earnings-January  1 , 20 X 7  Comprehensive income for the year   Dividends paid   Retained earnings - December  31 , 20 X 7 ​ £ 1 , 002 213 ( 50 ) 1 , 165 ​ ​ ​ Additional information:1. Time was incorporated on January 1, 20X3, when it acquired all its equipment for £4,005,000 and issued its 10-year bonds payable.2. Time's purchases and sales occurred evenly over the year. Inventories on hand at December 31, 20X6, and December 20X7 were purchased evenly over the last quarter of 20X6 and 20X7, respectively. Inventories as at December 31, 20X7, were £650,000.3. Dividends were paid on March 31, 20X7.4. Foreign exchange rates are as follows:  January  1 , 20 X 3 £ 1 = C $ 1.95  January 1, 20X6  £ 1 = C $ 1.85  Average for Oct to Dec, 20X6  £ 1 = C $ 1.64  Average for 20X6  £ 1 = C $ 1.73  December  31 , 20 X 6 /  January  1 , 20 X 7 £ 1 = C $ 1.67  March  31 , 20 X 7 £ 1 = C $ 1.61  Average for Oct to Dec,  20 X 7 £ 1 = C $ 1.55  Average for  20 X 7 £ 1 = C $ 1.57  December  31.20 X 7 £ 1 = C $ 1.52 \begin{array}{ll}	ext { January } 1,20X3  &  £ 1=C \$ 1.95 \	ext { January 1, 20X6 }  &  £ 1=C \$ 1.85 \	ext { Average for Oct to Dec, 20X6 }  &  £ 1=C \$ 1.64 \	ext { Average for 20X6 }  &  £ 1=\mathrm{C} \$ 1.73\ 	ext { December } 31,20X6 / 	ext { January } 1,20X7  &  £ 1=C \$ 1.67 \	ext { March } 31,20X7  &  £ 1=C \$ 1.61 \	ext { Average for Oct to Dec, } 20X7  &  £ 1=C \$ 1.55 \	ext { Average for } 20X 7  &  £ 1=C \$ 1.57 \	ext { December } 31.20X7  &  £ 1=C \$ 1.52\end{array}  January  1 , 20 X 3  January 1, 20X6   Average for Oct to Dec, 20X6   Average for 20X6   December  31 , 20 X 6/  January  1 , 20 X 7  March  31 , 20 X 7  Average for Oct to Dec,  20 X 7  Average for  20 X 7  December  31.20 X 7 ​ £1 = C $1.95 £1 = C $1.85 £1 = C $1.64 £1 = C $1.73 £1 = C $1.67 £1 = C $1.61 £1 = C $1.55 £1 = C $1.57 £1 = C $1.52 ​ Required:Translate Time's statement of comprehensive income for the year ended December 31, 20X7 into Canadian dollars assuming its functional currency is Canadian dollars. Calculate the translation gain or loss arising in 20X7.

Ronjhae Emery · Accepted Answer

Final Answer :  Time Limited 	ext {Time Limited} Time Limited Statement of Comprehensive Income 	ext {Statement of Comprehensive Income} Statement of Comprehensive Income  Year Ended December 31,  20 X 7 	ext { Year Ended December 31,   20X7  }  Year Ended December 31, 20 X 7 (in thousands of  £  ’s) 	ext {(in thousands of   £    ' s)} (in thousands of £ ’s) £  Exchange rate  C $  Sales  2 , 170 1.57 3 , 407  Opening inventory  650 1.64 1 , 066  Purchases  1 , 378 1.57 2 , 163  Closing inventory  ( 825 ) 1.55 ( 1 , 279 )  Depreciation expense  267 1.85 494  Interest expense  80 1.57 126  Other expenses  407 1.57 ‾ 639 ‾ 1 , 957 ‾ 3 , 209 ‾ 198 ‾  Translation gain  197  Comprehensive income  213 395 \begin{array}{|l|r|r|r|}\hline  & £  &  	ext { Exchange rate }  &  \mathrm{C} \$ \\hline 	ext { Sales }  &  2,170  &  1.57  &  3,407 \\hline  &   &   &  \\hline 	ext { Opening inventory }  &  650  &  1.64  &  1,066 \\hline 	ext { Purchases }  &  1,378  &  1.57  &  2,163 \\hline 	ext { Closing inventory }  &  (825)  &  1.55  &  (1,279)\ \hline 	ext { Depreciation expense }  &  267  &  1.85  &  494 \\hline 	ext { Interest expense }  &  80  &  1.57  &  126 \\hline 	ext { Other expenses }  &  407  &  \underline{1.57}  &  \underline{639} \\hline  &  \underline{1,957}  &   &  \underline{3,209} \\hline  &   &   &  \underline{198} \\hline 	ext { Translation gain }  &   &   &  197 \\hline 	ext { Comprehensive income }  &  213  &   &  395 \\hline\end{array}  Sales   Opening inventory   Purchases   Closing inventory   Depreciation expense   Interest expense   Other expenses   Translation gain   Comprehensive income  ​ £ 2 , 170 650 1 , 378 ( 825 ) 267 80 407 1 , 957 ​ 213 ​  Exchange rate  1.57 1.64 1.57 1.55 1.85 1.57 1.57 ​ ​ C $ 3 , 407 1 , 066 2 , 163 ( 1 , 279 ) 494 126 639 ​ 3 , 209 ​ 198 ​ 197 395 ​ ​ Calculation of translation gain or loss for 20X7.  In thousands of  £ ′  ’s   Local   currency  £  Exchange   rate   C  $  Monetary items:   Balance Janulary 1, 20X7  ( 1 , 385 1.67 ( 2 , 313  Changes during 20X7   Sales  2 , 170 1.5 3 , 407  Purchases (note 1)  ( 1 , 378 1.57 ( 2 , 163  Interest  ( 80 1.57 ( 126 )  Other expenses  ( 407 1.57 ( 639 )  Dividends paid  ( 50 1.61 ( 81 )  Derived balance  ( 1 , 915 )  Actual balance-December  31 , 20 × 7 ( 1 , 130 1.52 ( 1 , 718 ‾ )  Net translation gain for  20 × 7 197 ‾ \begin{array}{|l|r|r|r|}\hline 	ext { In thousands of } £^{\prime} 	ext {  ' s }  &  \begin{array}{c}	ext { Local } \	ext { currency } \£\end{array}  &  \begin{array}{c}	ext { Exchange } \	ext { rate }\end{array}  &  	ext { C } \$ \\hline 	ext { Monetary items: }  &   &   &  \\hline 	ext { Balance Janulary 1, 20X7 }  &  (1,385  &  1.67  &  (2,313 \\hline 	ext { Changes during 20X7 }  &   &   &  \\hline 	ext { Sales }  &  2,170  &  1.5  &  3,407 \\hline 	ext { Purchases (note 1) }  &  (1,378  &  1.57  &  (2,163 \\hline 	ext { Interest }  &  (80  &  1.57  &  (126) \\hline 	ext { Other expenses }  &  (407  &  1.57  &  (639) \\hline 	ext { Dividends paid }  &  (50  &  1.61  &  (81) \\hline 	ext { Derived balance }  &   &   &  (1,915) \\hline 	ext { Actual balance-December } 31,20 	imes 7  &  (1,130  &  1.52  &  \underline{(1,718}) \\hline 	ext { Net translation gain for } 20 	imes 7  &   &   &  \underline{197} \\hline\end{array}  In thousands of  £ ′  ’s   Monetary items:   Balance Janulary 1, 20X7   Changes during 20X7   Sales   Purchases (note 1)   Interest   Other expenses   Dividends paid   Derived balance   Actual balance-December  31 , 20 × 7  Net translation gain for  20 × 7 ​  Local   currency  £ ​ ( 1 , 385 2 , 170 ( 1 , 378 ( 80 ( 407 ( 50 ( 1 , 130 ​  Exchange   rate  ​ 1.67 1.5 1.57 1.57 1.57 1.61 1.52 ​  C  $ ( 2 , 313 3 , 407 ( 2 , 163 ( 126 ) ( 639 ) ( 81 ) ( 1 , 915 ) ( 1 , 718 ​ ) 197 ​ ​ ​ Note 1: Purchases is equal to:Cost of goods sold add closing inventory less opening inventory:= 1,203 + 825 - 650 = 1,378

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