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For the deferred tax element of the question which relates to a property acquired by a foreign branch, why is the carrying value not translated at the closing rate?
I thought when we consolidated the SOFP of a foreign operation we use the closing rate for all assets/liabilities?
I understand that the property is a non-monetary item but (which would imply we should translate at historical rate or the rate on date of FV revaluation if applicable) but how can we have a different treatment at the individual level then we apply when looking at the SOFP as a whole?
I have never been as confused as I have been with this exam.
Many thanks,
Sam
Probably more helpful to give a bit more info – apologies!
The answer does this:
Cost at acquisition Dinars 6,000 (translate to $ at rate on acquisition) $1,200
less deprecation Dinars (500) (translate to $ at rate on acquisition) ($100)
Carrying value Dinars 5500 (translate to $ at rate on acquisition) ($1,100)1. why is the carrying value not translated at the closing rate given its assets/liabilities are translated at the closing rate when consolidating the SOFP?
2.Presumably when calculating the deferred tax asset/liability you use the rate of tax in the jurisdiction and the rate in the parents jurisdiction is just a red herring?
Sub has same functional currency as parent – so it will prepare it’s own accounts in $.
It has entered a foreign transaction – so use rules on retranslation of transactions – non monetary v monetary etc
Tax rate would be of the foreign jurisdiction
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