3nquestions

1) Question 4 and 5: Suggested time 30 minutes: 15% points:

Shake Shack Burger, a US based company, establishes an operation in the UK in January 1, 2012, when the exchange rate is USD $1.50 per GBP (pound). During Year 1, the UK branch generates GBP 5,000,000 of pretax income. On October 15, 2012, GBP 2,000,000 is repatriated to Shake Shack Burger and converted to USD. Assume the effective income tax in the UK is 30 percent. Taxes were paid in the UK on December 31, 2012. Relevant exchange rates for 2012 year are provided here (USD per GBP)

January 1 …………1.50

Average 30 ……….1.45

October 15………..1.35

December 31……..1.30

Assume a US tax rate of 35 percent.

Instructions

a) Assuming that Shake Shack’s operation in the UK is registered with the UK government as branch, determine the amount of US taxable income, US foreign tax credit and net US tax liability related to the UK branch (all in US dollars).

b) Assuming that Shake Shacks’s operation in the UK is incorporated as a subsidiary, determine the amount of US taxable income, US foreign tax credit and net US tax liability related to the UK branch (all in US dollars).

Question 2: Suggested time 20 minutes: 10% points:

Cinchcast Company begins its operations on January 1, 2012. The company’s unadjusted financial statements for the year ended December 31, 2012 are as follows:

Balance Sheet	January 1, 2012	December 31, 2012
Cash and receivables	$20,000	$35,000
Fixed assets, net	$50,000	$45,000
TOTAL	$70,000	$80,000
Payables	$15,000	$15,000
Capital	$55,000	$55,000
Retained earnings	$0	$10,000
TOTAL	$70,000	$80,000

Income Statement	December 31, 2012
Revenues	$50,000
Depreciation	$5,000
Other expenses	$35,000
Income	$10,000

Revenues and expenses occur evenly throughout the year, revenues and other expenses are realized in terms of monetary assets (cash and receivables).

General price indexes for 2012 are as follows:

January 1, 2012 …………….100

Average (year) 2012 …..…...120

December 31, 2012…………150

Instructions

a) Calculate Cinchcast Company’s 2012 purchasing power gain or loss on net monetary items.

b) Determine Cinchast Company’s 2012 income on a general purchasing power basis (ignore income taxes).

Question 7: Suggested time 15 minutes: 10% points:

The Monsanto Company has a defined benefit pension plan for its employees. At December 31, 2012, the following information is available regarding Monsanto’s plan:

Fair value of plan assets	$30,000,000
PV of defined benefit obligation	$38,000,000
Interest costs	$1,200,000
Net unrecognized actuarial gains	$300,000
Recognized actuarial gains	$150,000
Unrecognized past service costs	$375,000

Instructions: Determine the amount that Monsanto will report on the balance sheet as of December 31, 2012 for this pension plan under:

(a) IFRS

$

(b) US GAAP.