Exchange differences on consolidating debt, how to translate specific items to a presentation currency

Intragroup sales and unrealized profit Exchange differences on consolidating debt regard to profit or loss items, or intragroup sales — you should translate them at the date of a transaction if practical.

It stays there and it will become a part of a consolidated profit or loss, because it reflects the foreign exchange exposure resulting from foreign trade. Translating share capital For the share capital, the most appropriate seems to apply the historical rate applicable at the date of acquisition of the subsidiary by the parent, rather than the historical rate applicable when the share higher caliber online dating experience was issued.

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At the reporting date 31 Decthe consolidated financial statements show: What works the best? Here, let me warn you about the exception. The relevant exchange rates: How to translate equity items?

Imagine the same situation as above.

It means that in most cases, companies decide whether they apply closing rate or historical rate. Many people assume that exchange differences on intragroup receivables or payables should NOT affect the consolidated profit or loss.

However, they need to be consistent. Let me illustrate again. Be careful — this is the translation of a foreign currency payable to a functional currency, hence nothing to do with the consolidation.

Click here to check it out! What about the provision for unrealized profit?

If the equity balances result from income and expenses presented in OCI e. It is translated at the transaction date rate, i.

On the consolidation, the exchange rate gain of EUR 50 recorded in the German financial statements in profit or loss needs to be reclassified in OCI together with the difference that arises on translation of the EUR 50 by the average rate.

The inventories at the historical rate this is non-monetary asset translated to a functional currency at the historical rate: UK parent sold goods to the German subsidiary for GBP 10 on 30 November and as of 31 Decemberthe receivable is still open.

Example: Consolidation with Foreign Currencies

How to translate specific items to a presentation currency If you translate the financial statements to a presentation currency for the purpose of consolidation, you need to be careful with certain items. How to translate intragroup balances?

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Actual rates are the rates at the date of the individual transactions, but you can use the average rate for the year if the actual rates do not differ too much. Here, IAS 21 is silent again, but in my opinion, the most appropriate seems to apply the rate ruling at the transaction date.

Intragroup assets and liabilities Intragroup receivables and payables are translated at the closing rate, as any other assets or liabilities. The cost of goods sold for the German subsidiary was EUR 4 When the UK parent translates German financial statements to GBP for the consolidation purposes, the share capital will be translated at the historical rate applicable on 3 January Then, on 3 Januarythe German company was acquired by the UK company.

Some time ago, the exposure draft proposed to translate the equity items at the closing rate, but it was not included in the standard. The only difference is that there was no intragroup sale of inventories.

On 31 DecemberGerman subsidiary translates this monetary payable by the closing rate in its own financial statements.

Example: Consolidation with Foreign Currencies – IFRSbox – Making IFRS Easy

The goods remained unsold at the year-end and the payable was unpaid. GBP 3 Please note the little trick here.

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They remain unsold in the UK warehouse at the year-end. If not, then apply the average rates for the period. If you translate the financial statements using different foreign exchange rates, then the balance sheet would not balance i.

Intragroup dividends If a subsidiary pays a dividend to its parent, then the parent records the dividend revenue at the rate applicable when the dividend was DECLARED, not paid.

Why is there a CTD? If the German subsidiary does NOT sell the inventories to the parent, but keeps them at its own warehouse — what would their amount for the consolidation purposes be?