1. Le Pumps Case Study
Alex Koehler
Anita Sayyed
Ronald Honse Jr.
2. Brief Explanation of Case
Ferguson (US)/Le Pumps (UK)
Functional currency determination
Necessary adjusting entries for consolidation
3. Determination of Functional Currency
Functional Currency: “currency of the primary economic
environment in which the entity operates” (ASC 830-10-
45-2)
ASC 830-10-45-3
Le Pumps’ day-to-day operations not dependent on
economic environment of dollar
Le Pumps’ cash flow can be converted into dollars and paid
back to parent company, Ferguson
Functional currency: Pounds
4. Determination of Functional Currency
(Continued)
ASC 830-10-55-5
Economic Factors Functional Currency
Cash flows Pound
Sales price Pound
Sales market Pound
Expense Pound
Financing Dollar
Intra-entity and
arrangements Pound
7. Purpose
ASC 810-10-10-1
“To present…the results of operations and
financial position of a parent and all its
subsidiaries as if the consolidated group were a
single economic entity.”
For the benefit of owners and creditors of the parent
entity.
Consolidated financial statements are more meaningful
than separate financial statements.
8. Intra-Entity Transactions and Balances
ASC 810-10-45-1
Intra-Entity balances and transactions shall be
eliminated upon consolidation.
Includes:
Intra-entity open account balances
Intra-entity sales and purchases
Intra-entity profits and losses on assets remaining
within the consolidated group
9. Translation Adjustments
ASC 830-30-45-12
Result from translating subsidiary’s functional currency
into the reporting currency.
Not included in determining Net Income
Reported in Other Comprehensive Income
10. Recognition of Subsidiary’s Earnings
ASC 323-10-35-4
Investor shall recognize it’s share of the earnings or
losses of an investee in income.
Investor’s share is based on the shares of common stock
and in-substance common stock held by the investor.
Le Pumps, Ltd –> wholly owned by Ferguson Pumps,
Inc.
12. Steps to Consolidation
STEP 1: Inclusion of profits of Subsidiary
in Parent’s income
A. Translation of investment Account.
B. Including income of LePumps Inc.
B1 Record translation gain on income
13. Steps to Consolidation (Continued)
STEP 2: Elimination of subsidiary’s Equity
C. Elimination of Le Pumps Equity
15. Steps to Consolidation (Continued)
STEP 3: Elimination Of Intercompany
Transactions
D. Elimination of unrealized profits
I. Elimination of Intercompany sales and purchases
17. Steps to Consolidation (Continued)
STEP 4: Elimination Of Intercompany
Balances
E. Translation Gain/Loss on intercompany
receivable/payables
F. Elimination of Intercompany receivables
G. Long term Receivable/Payable translation gain/Loss
H. Elimination of long term receivable/ Payables
19. Loan forgiveness of $2000,000
Fergusons:
Loss of $2000,000 in in P&L
LePumps:
Loan recorded @ .6307GBP:$
Loan forgiven @.614GBP:$
gain of GBP 1,227,974 on loan forgiveness and a translation
gain of GBP33,370. Both will be included in the profit for the
year.
