ACCA SBR INT Syllabus D. Financial Statements of Groups entities - Foreign exchange - subsidiaries - Notes 2 / 3
Foreign Exchange - Subsidiaries
Basic Idea: We need to translate the Foreign Sub into the Group Currency
Exchange rates to be used:
Assets and Liabilities - Year End Rate
Income Statement - Average Rate
All forex differences go to the OCI and Reserves (Translation Reserve)
Equity Table - Working
First simply do this in the FOREIGN currency (ignore the post acquisition column) and then translate it at the following rates:
At Year End column - Year End Rate
At Acquisition column - Acquisition Rate
Now do the post-acquisition column - using the translated figures
Foreign Exchange Translation Reserve
How to calculate the Translation differences:
This can be calculated as follows:
Translation Reserve
Opening NA (@ opening rate) | (x) |
Profit (@ average rate) | (x) |
Balancing Figure (Forex Diff) | X |
Closing NA (@ closing rate) | x |
Goodwill - Working
Goodwill (in foreign currency)
Step 1: Work Goodwill in the FOREIGN currency
Step 2: Translate the final figure at Acquisition Rate
Step 3: Translate any impairment at the average rate for when it happened
Step 4: Translate final goodwill figure at the Year End Rate (This is what shows on the SFP)
Step 5: Any balancing difference goes to the OCI and Translation reserve in Equity
(nb. The NCI also get their share if using the FV method)
Consideration | 120,000 |
NCI | 27,000 |
FV of Net Assets Acquired | (130,000) |
Goodwill | 17,000 |
Step 1:Take 17,000 and translate it at the Acquisition rate
e.g. 17,000 x 0.5 = $8,500
Step 2:No Impairment so no translation of it needed
Step 3:Now take the 17,000 and translate it at the Year-end rate.
e.g. 17,000 x 0.6 = $10,200
The $10,200 is shown in the group SFP and the gain of $1,700 is taken to OCI and the Translation Reserve