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Hey,Mike
According to your lecture, the exchange rate for Consolidated SFP is the closing rate. When you are calculating the Consolidated R.E, you also used closing rate on the Sub’s net assets on acquision date,to calculate sub’s post-acquision changes of RE. But when I am doing the revision kit from BPP, I found they used the rate on the acquision date for the pre-acquision RE figure and closing rate for post-acquision RE figure, and also added the exchange differnce on Good Will to the CRE, while you didn’t. Can you advise what I shall follow? Or this is just simply different ways you and BPP do, but I am still a bit confused….Many thanks!
Hi – I think ( hope! ) that my way is correct!!! I think also that what we are looking at is just 2 different ways of achieving the same objective
Kindly could you please tell me how i would deal with the retained earnings in foreign subsidiaries?
The same as you would if it were not foreign! Include it in your translation exercise. Include it in your Working 3 for the consolidated retained earnings calculation. what more do you need to know?
I am still confused about it please could you check on me for the steps i am doing
step (1) i translate all the foreign subsidiaries balance sheet items (excluding equity items) at the currency rate at reporting date
– the translated foreign subsidiary equity will be a balancing figure = ( translated foreign subsidiary assets(LESS) translated foreign subsidiary liabilities)
-Post acquisition Retained earnings of the parent company in the subsidiary that will be included in consolidation = total translated foreign subsidiary equity (LESS) cost of investment of the parent company in foreign subsidiaryStep (2) translate the foreign subsidiary p/L figures at the average currency rate during the period
Step (3) bring the foreign subsidiary beginning equity balance at the beginning of the year (then) translate it at currency rate at the end of previous year (ADD) on it the translated profits calculated in step 2 above = expected translated equity at the end of reporting year
step (4) compare the expected translated equity at the end of reporting year calculated in step (3) and compare it with the balancing figure of the equity which was calculated in step (1) = For ex gain or (loss)
This is the BPP way – it’s not my way! My way is translate ALL the B/S at closing rate.
Otherwise, the rest of the steps seem ok
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