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Hi tutors
When we have a groups of foreign entities let’s suppose that the foreign subsidiary trades with the parent (currency GBP) and translate its trade payable (in GBP) with the parent in its Trial balance from GBP to USD with fx gains and losses in their p&l
Now when the parent (which currency is GBP) consolidates the foreign subsidiary, it would take the trial balance of the subsidiary (which will have included the trade payable translated from GBP to USD plus the fx gain and loss) and will translate the foreign investment to GBP where the FX gain/loss will go to other comprehensive income. question is…
Is this correct to covert twice? 1- the payable from GBP to USD in the foreign subsidiary books and then back from USD to GBP when the parent translate the trial balance (which includes the payable but now in USD) of the foreign subsidiary
hope it is clear enough
thanks
DanYour understanding is perfect.
Sub has a foreign transaction – fx difference on the payable in its P&L
Then Parent translates all of assets and liabilities (including the payable) of sub ; fx difference in OCI
Finally inter-company balances will cancel out (well, hopefully 🙂 )
Thanks Stephen
For the inter-company to cancel each other, the first translation to USD in the subsidiary as well as the translation in the parent to consolidate from USD back to GBP would have to be at transaction date fx rate, otherwise there would be a mismatch no? (Only referring to the payable and receivable)
P sells £100 sausages to S. P has receivable of £100.
S trades in $. Exchange rate $2 = £1.
S will credit payables with $200.Assume exchange rate moves to 3 at year end.
S retranslates payable to $300.So P has receivable of £100 and S has payable of $300.
Then translate all of S at 3.
Now P has receivable of £100 and S has payable of £100.Now cancel out, and have a cup of tea.
🙂
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