On 31 December 20x4, Magnum Corporation, whose functional and presentation currency is the dollar ($), acquired 75% of the ordinary share capital of Rockford Company, which was situated in a foreign country whose currency was the LC. At the date of acquisition, Rockford Company’s share capital was LC120,000,000 and the retained earnings were LC 150,000,000. Rockford had not issued any share capital since its acquisition by Magnum. The following financial statements relate to Magnum and Rockford for the year ended 31 December 20x5.

Additional information

(a) The book values of Rockford’s assets and liabilities approximated their fair values except for plant and equipment whose fair value was greater than the book value by LC 50,000,000 on 31 December 20x4. Rockford had not revalued its assets since its acquisition by Magnum. The plant and equipment had a remaining economic life of five years from 31 December 20x4 and no salvage value.

(b) Magnum had made a loan of $30,000,000 at an interest rate of 6% per annum to Rockford on 31 December 20x4. The loan was repayable on demand. Rockford had included the loan in its non-current liabilities. The interest expense (paid on 31 December 20x5) has been included under general and administrative expenses.

(c) Although two directors of Magnum sit on the board of Rockford, the management of Rockford had significant autonomy in managing the affairs of the company.

(d) The following exchange rates are relevant to the financial statements:

(e) There was no impairment of goodwill at 31 December 20x5.

(f) Recognize tax effects at 20%.
Magnum Corporation’s functional and presentation currency is the dollar. Rockford’s functional currency is the LC.

Required
Prepare the consolidated financial statements of Magnum Group for the year ended 31 December 20x5.

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MAGNUM CORPORATION Income Statement For the Year Ended 31 December 20x5 Sales.. Cost of goods sold. Gross profit. General and administrative expenses. Depreciation expense Profit before tax.. Taxation.. Profit after tax. Retained earnings, 1 January.. Retained earnings, 31 December.. $ '000 500,000 (300,000) 200,000 (75,000) (50,000) 75,000 (15,000) 60,000 463,000 523,000