- March 27, 2022 at 5:36 pm #652050UngaraMember
- Topics: 1
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We have a company which functional currency was the USD up to the year 2020. The Company’s share capital is EUR 10.000, the equivalent of USD 14.500. As of 01/01/2021 the Company’s functional currency will be the EUR. As per IAS 21 the effect of a change in the functional currency is accounted for prospectively. Therefore, an entity translates all items into the new functional currency using the exchange rate at the date of change. The resulting translated amounts for non-monetary items are treated as their historical cost.
Translating the USD 14.500 with the applicable rate on 01/01/2021, will be EUR 13.000. Which is not correct, since in reality the Company’s share capital is EUR 10.000. What shall we do with the resulting EUR 3.000 difference? Does it go to the translation reserve? However as per IAS 21, after changing the functional currency, we should not have a translation reserve, as this is a different translation from translating the functional currency to a different presentation currency. Can someone please advise?
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