Question

1. Assume that at January 1, 2011, the first day of the new fiscal period, the city council of Barb City approves the operating budget for the general fund, providing for $800,000 in revenue and $750,000 in expenditures. Approval of the budget provides the legal authority to levy the local property taxes and to appropriate resources for the expenditures. Record the transaction in journal.

2. Discuss in detail the following areas covered under partnership agreement.

• Manner of sharing profits.
• Limitations on withdrawals.
• Rights of partners.
• Conflicts of interest.

3. On Jan, 1 2014, Peter Corp. (a U.S. based company) formed a new subsidiary in Saudi Arabia, Saeed Inc., with an initial investment of 30,000 SAR.

Assume Saeed Inc. Purchases inventory evenly throughout 2014.

The ending inventory is purchased Nov. 30, 2014.

Uses straight-line depreciation on fixed assets.

Declares and pays dividends on Nov. 30, 2014.

Purchased the fixed assets on April 1, 2014.

Uses SAR as the functional currency.

Exchange Rates are given:

Jan 1, 2014                    0.260

April 1, 2014                 0.255

Nov. 30, 2014                0.240

Dec. 31, 2014                0.238

REQUIRED

Prepare a schedule to Saeed’s financial statements on Dec. 31, 2014 to U.S. dollars.

Answer 1

Q1. Assume that at January 1, 2011, the first day of the new fiscal period, the city council of Barb City approves the operating budget for the general fund, providing for $800,000 in revenue and $750,000 in expenditures. Approval of the budget provides the legal authority to levy the local property taxes and to appropriate resources for the expenditures. Record the transaction in journal.

A.  The given information is not required to record in Journal. These doesn't represent the transactions. In Journal, we records the information in journal when the transaction happened. The approval to budget is not a transaction.

Q2. Discuss in detail the following areas covered under partnership agreement.

• Manner of sharing profits.
• Limitations on withdrawals.
• Rights of partners.
• Conflicts of interest.

A. Manner of Sharing Profit: The Profits/losses must be shared as per the profit sharing ratio specified in the partnership deed. However, if there is no partnership deed, the profits/losses are shared as per the governing law of partnership. Normally, Governing Law of partnership provides the equal distribution of profits/losses among partners.

Limitations on withdrawals: The limitation on withdrawals can be imposed through Partnership deed as matually agreed among partners. Otherwise, there is no limitation on withdrawals.

Rights of partners:- The partner of firm has following rights except otherwise provided in partnership deed:-

• Each Partner has equal right to participate in the affairs of the business.
• Each Partner can access the books of accounts and other information of firm.
• Each Partner has right in Profit/loss of the firm in specified Profit sharing ratio.
• Each Partner can express his opinion for decsion making.

Conflicts of interest:- whenever, there is any conflict among the partners, the decision of majority partners are in force except otherwise agreed. The dispute resolution process may also be specified in partnership deed.

Q3. On Jan, 1 2014, Peter Corp. (a U.S. based company) formed a new subsidiary in Saudi Arabia, Saeed Inc., with an initial investment of 30,000 SAR.

Assume Saeed Inc. Purchases inventory evenly throughout 2014.

The ending inventory is purchased Nov. 30, 2014.

Uses straight-line depreciation on fixed assets.

Declares and pays dividends on Nov. 30, 2014.

Purchased the fixed assets on April 1, 2014.

Uses SAR as the functional currency.

Exchange Rates are given:

Jan 1, 2014                    0.260

April 1, 2014                 0.255

Nov. 30, 2014                0.240

Dec. 31, 2014                0.238

REQUIRED

Prepare a schedule to Saeed’s financial statements on Dec. 31, 2014 to U.S. dollars.

A. As per IAS 21, A foreign currency transaction should be recorded initially at the rate of exchange at the date of the transaction.

At each subsequent balance sheet date:

• foreign currency monetary amounts should be reported using the closing rate
• non-monetary items carried at historical cost should be reported using the exchange rate at the date of the transaction
• non-monetary items carried at fair value should be reported at the rate that existed when the fair values were determined

As amount of transactions are not specified in the question. Therefore we provide the following schedule of conversion rate for each transaction:-

S.No.	Particulars	Date of Exchange Rate	Exchange Rate	Re-Value at Closing Rate (31.12.2014)
1	Purchases inventory evenly throughout 2014	Date of Particular Transaction	Corresponding Date's Rate or Avg rate	No
2	The ending inventory is purchased Nov. 30, 2014.	Date of Purchase (Nov. 30, 2014)	0.240	No
3	Uses straight-line depreciation on fixed assets.	Date of Purchase of FA (April 1, 2014)	0.255	No
4	Declares and pays dividends on Nov. 30, 2014.	Nov. 30, 2014	0.240	No
5	Purchased the fixed assets on April 1, 2014.	Date of Purchase of FA (April 1, 2014)	0.255	No