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Hello Mr. Mike & hope you are fine ….
As far as I understood, when we want to make CSoFP, we must translate EVERYTHING at the closing rate and there is NO need to calculate the ExDiff of the subsidiary’s NA & ExDiff of goodwill for CSoFP.
When I do your example 2 of chapter 12 from your P2 notes, this method works perfectly and as far as I understand, you calculate ExDiff of the subsidiary’s NA & ExDiff of goodwill ONLY and ONLY for statement of changes in equity.However if the above statements are correct, then it is start of my confusing! Because when I want to solve Kaplan questions with your method, I calculate everything correctly EXCEPT two things :
1 – Retained Earnings (because it seems it uses average rate)
2 – There is a new item in CSoFP under the equity section ! It is called ”Group Foreign Exchange Reserver” (=Group share of retranslation of gain re goodwill + Group share of retranslation of gain re net asset) or when it is negative it is called ”Group Exchange difference”(which is deducted from Retained Earnings )! So it means that we have to calculate both ExDiff of the subsidiary’s NA & ExDiff of goodwill for CSoFP !!! WHY ?!And as the result, CSoFP is not balance.
As Always Thank you in advance
I should also say when NCI is not on the proportional basis, NCI also becomes wrong , because we should add (or deduct) ExDiff of subsidiary’s NA & ExDiff of goodwill to (or from) NCI on the basis of NCI proportion ….
If you are showing ex-diff movements in Statement of Changes in Equity ……..
…….. the bottom (total) row of the statement of changes in equity is the horizontal presentation of the vertical equity section of the statement of financial position!
So, if it’s in statement of changes, it must be in statement of financial position and, if its in statement of financial position, it must be in statement of changes!
?!?
Hello Mike
As always, thanks for you answer!
Yes, I agree completely with you that the bottom row of the statements of changes in equity is the horizontal presentation and the vertical equity section of the statement of financial position.
But the problem is something else!
As far as I understand, when you were solving for example 2 of chapter 12, you FIRST calculated the bottom (tottal) row of the statements of changes in equity and THEN calculate the EX Dff! So it means that we can calculate the equty section of the CSoFP without calculating the Exdiff at all!But when I want to use this method to solve Kaplan examples, then it becoms impossible! I mean in order to calculate the equty section, I have to FIRST calculate the ExDiff, then allocate this to Parent & NCI, THEN I have the equty section. I mean here we can not directly calculate the equity section without knowing the ExDiff!
Hope I am clear now and as always thank you in advance …
Kind RegardsAt the end of a foreign consolidation question, we need a working for the ex-diff.
The equation (and it holds good whether you’re a huge multi-national or simply a small company with a small subsidiary using a different currency) is:
Opening net assets @ opening rate
+
Retained profit (or loss) for the year as translated
+/- the exchange difference
=
Closing net assets @ closing rate
Now, opening net assets are as per last year’s balance sheet, so that’s easy
Retained profit / (loss) for the year is as per the translated statement of profit or loss less any dividend paid out, so that should also be straight forward
Closing net assets are simply the translated (adjusted as necessary) net assets from the closing translated statement of financial position.
Then the missing figure is the ex-diff.
I think it’s possibly a matter of you accepting that net assets is a value arrived at in either of two ways. we can look at it as though it were simply the capital section of the statement of financial position or we can look at it simply as translated assets less translated liabilities.
Does that make it any easier?
First of all thank you for your answer.
Well, I have no problem with calculating Ex-Diff(both goodwill and sunsdiray’s net asset). Maybe I can not ask my question clearly (and of course this is my fault 🙁 )Anyway, Am I right with the following ?
1 -Calculate retained earnings & NCI, using closing exchange rate.
2 – Calculate Ex-Diff of goodwill & Ex-Diff of subsidiray’s net asset.
3 – Add/deduct the above Ex-diffs to/from retained earnings & NCI on the basis of their proportion.
4-Now I have adjusted retained earnings & adjusted NCI and should put them in CSoFP.Kind Regards
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