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if a parent gives a loan to its foreign sub of $400…then apart frm eliminating the loan amt frm d receivables n payables…are we supposed to add or deduct any exchange loss on retranslating the loan in the sofp….bcoz if no such adjustment is made …then the sofp figures tally pls help…thank you
You are supposed to remove each and every intra-company transaction whatsoever. However, you are supposed to present each and every related aspect of loan in individual FS only.
This is one super complicated question, but I did some research and here’s what I found.
It depends on the timing of the loan and whether it is downstream or upstream.
If it’s been on the parent’s books for more than a year before parent gainig control, the gain or loss is posted to P/L this is because similar gain or loss must’ve been posted to P/L on previous periods (this is for upstream trans ie parents’ loan to sub).
So, in consolidation, using the historical rate will automatically adjust the gain or loss to the balancing figure of the exchange reserve, then the double entry will be on the historic rate
: DB Non Current Liability
CR Financial Asset
If the loan is on the same period of acquisition, it is then a monetary item and on practice it is adjusted on the transferred consideration and is cleared on the acquisition date.
Hope this is helpful!
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