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Hello,
I am struggling to understand why when a loan is made between a parent and a foreign subsidiary the exchange gain/loss made on the loan is not eliminated. I understand that the capital balance of the loan is eliminated along with the interest but I do not understand why the exchange gain or loss arising from it is not eliminated. Surely this will lead to an overstatement/understatement of profits if recognised and not eliminated.
If you could explain this I would really appreciate it
Does this situation not arise in the question Memo? And, from memory, the exchange gain in fact is recognised in the accounts. You’ll find the ex-diff adjustment on the loan in working 6 and working 8
Hello,
Yeah it arises in the question memo but i am trying to understand why it is recognised and not eliminated? shouldn’t it be eliminated as it’s intercompany?
thank you for your help
Oh! I’m so glad you asked that! I too cannot work out why the loan – was if 5m?- has not been eliminated. I thought originally that BPP had made a typo and that May should have been shown as march – but that also didn’t make sense.
No, sorry, I don’t know why the BPP answer has not eliminated the intra-group loan.
But good luck next week anyway
Great thank you anyway!
The same treatment is in the Kaplan book too… i think exchange gains and losses are treated separately and are not eliminated on consolidation. However,i do think th loan element is just not thegain/loss relating to it… although i cannot be sure.
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