Consolidating balance sheet example
Intragroup receivables and payables are translated , as any other assets or liabilities.Many people assume that exchange differences on intragroup receivables or payables should NOT affect the consolidated profit or loss. In fact, they do affect profit or loss, because the group has some foreign exchange exposure, doesn’t it? UK parent sold goods to the German subsidiary for GBP 10 000 on 30 November 2016 and as of 31 December 2016, the receivable is still open.It is translated at the transaction date rate, i.e. At the reporting date (), the consolidated financial statements show: Please note the little trick here.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?If you translate the financial statements using different foreign exchange rates, then the balance sheet would not balance (i.e. Therefore, CTD, or currency translation difference arises – it’s a and shows the difference from translating the financial statements in the 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.This is different from the situation when they are in the UK’s books. The UK parent acquired a German subsidiary on 3 January 2015 when the subsidiary’s retained earnings amounted to EUR 4 000.On 30 November 2016, the UK parent purchased goods from the German subsidiary for EUR 5 000.
With regard to profit or loss items, or intragroup sales – you should translate them at the date of a transaction if practical.You would need to translate them using the closing rate, isn’t it?