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Hi tutors
I have a question:
– how do we account for the FX gain/loss in a consolidated cashflow statement that involves a subsidiary in another country.
For example, a US subsidiary has increase its trade receivables but also the exchange rate between GBP/USD has moved. Let’s say we in UK own 100% of the subsidiary; when doing the cashflow statement we would subtract current receivables to previous period of the UK entity and the ones of the subsidiary and that would give the change in cash; but with the FX change in the subsidiary this is altered since we had to translate the subsidiary receivables to GBP.
so, do we need to “stripped” the change between what is the actual movement on receivables in the subsidiary and what is the fx change? and then add back the fx change to the P&L since it is not cash?
same for example with a purchase of an asset
thanks
Method:
1. Prepare separate cash flows for P and S in their respective currencies. Everything balances. 🙂
2. Translate S’s cash flow at average rate.Everything still balances. 🙂
3. Consolidate (i.e. add the 2 cash flows together) Everything still balances. 🙂
Examinability:
Surely not practical to examine in numbers! What a relief!
Hi Stephen thanks
Just researched online and it says that inter company transaction should be eliminated
So basically we have to do a separate consolidated statement for cashflow and do the eliminations based on cashflows ?
Thanks
Example of transaction that would be eliminated = inter-company dividend, removed from S’s divs paid and from P’s divs received.
🙂
Thanks Stephen
So we have to the complete process of inter company elimination again for cashflow statements – right ?
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