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Below are two sample questions and answers completed by one of our senior accounting professionals. These examples demonstrate the quality of work you can expect when you trust us with your assignments.
Question 1
A multinational corporation headquartered in the United States owns a wholly owned subsidiary in Germany. The subsidiary reports in euros. For the current fiscal year, the German subsidiary reports a net income of fifty thousand euros. The exchange rates during the year were relatively stable, with the average rate being one euro equals one point one zero US dollars. The parent company uses the current rate method for translation purposes. What will be the consolidated income statement impact, and how should the translation adjustment be handled in the financial statements?
Answer
In this scenario, the parent company applies the current rate method for currency translation as per US GAAP. Under this method, the income statement of the foreign subsidiary is translated using the average exchange rate of the reporting period. Since the average exchange rate is one euro equals one point one zero US dollars, the net income of the German subsidiary, when translated, becomes fifty-five thousand US dollars.
This translated net income is then consolidated into the parent’s income statement, increasing the consolidated net income by this amount.
However, since assets and liabilities are translated at the current exchange rate (at year-end) and income statement items at the average rate, there is a resulting foreign currency translation adjustment due to exchange rate fluctuations. This translation adjustment is not recognized in the profit and loss statement but is recorded in Other Comprehensive Income (OCI), which is part of shareholders' equity in the consolidated balance sheet.
Thus, the impact on the consolidated income statement is an increase of fifty-five thousand US dollars, while the translation adjustment goes to OCI and is disclosed under accumulated other comprehensive income in the equity section.
Question 2
A company has acquired an 80 percent interest in another company. The purchase price paid for the acquired interest includes a premium due to expected synergies. After acquisition, the acquirer must consolidate the financial statements of both entities. How should the goodwill be calculated and presented in the consolidated financial statements?
Answer
When a company acquires a controlling interest in another entity, it must prepare consolidated financial statements. In this case, the parent owns 80 percent of the subsidiary. Goodwill arises when the purchase price exceeds the fair value of the identifiable net assets acquired.
To calculate goodwill in such a situation, the full goodwill method is commonly applied under both IFRS and US GAAP. This method involves:
Determining the fair value of the consideration transferred for the 80 percent stake.
Estimating the fair value of the remaining 20 percent non-controlling interest.
Adding both values to determine the total implied value of the subsidiary.
Subtracting the fair value of the subsidiary's identifiable net assets from this total to determine goodwill.
The calculated goodwill is then recognized in full in the consolidated balance sheet. It is presented as an intangible asset and is not amortized but tested annually for impairment. The non-controlling interest is also recognized in the consolidated financial statements, typically in the equity section.
This treatment ensures that the consolidated financials reflect the economic reality of the entire business, including both the parent and minority interest holders.
These examples show how master-level accounting questions often require a clear understanding of international standards, strategic judgment, and advanced financial principles. Our Accounting Assignment Writer team brings not just academic accuracy but also practical insight from real-world financial scenarios. We go beyond just solving assignments — we help you understand the ‘why’ behind every answer.
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