REPORTING STANDARDS

(a) Masiliso, a private limited company, has two overseas subsidiaries, Nawa and Mpaso. Masiliso is based
in a country which has a currency of the dollar. Nawa is based in Japan where the currency is the yen. Mpaso
is based in Portugal which has the currency of the euro. Masiliso and Mpaso sell golf clothing and
Nawa sells golf equipment. Nawa and Mpaso are financed by the provision of long-term loans at market
interest rates in dollarsfrom Masiliso.
Masiliso’s sales are mainly in its own jurisdiction, and are priced and collected in dollars. The legal
requirements and the business environment in Masiliso’s jurisdiction determines the pricing of
Masiliso’s products. Goods and services are sourced locally and paid in dollars but occasionally the
entity trades in small amounts in other currencies.
Nawa conducts its business with significant autonomy from Masiliso as it manufactures golf equipment
which itsells mainly in Japan in yen. Local management determines prices based upon the local legal
and business conditions. Most raw materials and labour are sourced from local suppliers with a small
amount of specialised equipment sourced from China. Nawa sells a small amount of golf clothing, which
it purchases from Masiliso and pays in dollars.
Mpaso imports golf clothing manufactured by Masiliso and pays Masiliso in dollars. All other operating
expensesare paid in euros. Masiliso gives Mpaso a discount on the normal selling price of its products.
Mpaso sells its products mainly in Portugal in euros. The local legal and business conditions and the
cost of the product from Masiliso dictate the pricing of products but all prices have to be agreed by
Masiliso. At the month end, an intra-group dividend is paid in cash to Masiliso in euros which amounts
to the net profit made by Mpaso for themonth.
The directors require advice on the determination of each of the functional currencies of Masiliso, Nawa
and Mpaso. (9 marks)
(b) On 1 December 2019, Masiliso acquired a trademark, Pindu, for a line of golf clothing for $3 million.
Initially, Masiliso expected to continue marketing and receiving cash flows from the Pindu product-line
indefinitely. However, because of the difficulty in determining its useful life, Masiliso decided to amortise
the trademark over a 10-year life, using the straight-line method. In December 2022, a competitor
unexpectedly revealed a technological breakthrough which is expected to result in a product which,
when launched, will significantly reduce the demand for the Pindu product-line. The demand for the Pindu
product-line is expected to remain high until May 2025, when the competitor is expected to launch its
new product.
At 30 November 2023, the end of the financial year, Masiliso assessed the recoverable amount of the
trademarkat $500,000 and intends to continue manufacturing Pindu products until 31 May 2025.
The directors of Masiliso require advice as to how to deal with the trademark in the financial statements
for theyear ended 30 November 2023. (8 marks)
(c) At 30 November 2023, three people own the shares of Masiliso. The finance director owns 60%,
and the operations director owns 30%. The third owner is a passive investor who does not help manage
the entity. All ordinary shares carry equal voting rights. The wife of the finance director is the sales
director of Masiliso. Their son is currently undertaking an internship with Masiliso and receives a salary
of $30,000 per annum, which is normal compensation.
The finance director and sales director have set up an investment company, Kayama. They jointly own
Kayama and their shares in Kayama will eventually be transferred to their son when he has finished the
internship with Masiliso.
In addition, on 1 June 2023 Masiliso obtained a bank loan of $500,000 at a fixed interest rate of 6% per
annum. The loan is to be repaid on 30 November 2024. Repayment of the principal and interest is
secured by a guarantee registered in favour of the bank against the private home of the finance
director.
The directors of Masiliso require advice on the identification and disclosure of the company’s related
parties in preparing its separate financial statements for the year ending 30 November 2023. (8 marks)
Required:
Discuss the advice which should be given to Masiliso in each of the above cases with reference to
relevant International Financial Reporting Standards.
Note: The mark allocation is shown against each of the three issues above.
Total Marks (25 marks)