Gains and Losses on Consolidation

Ssosbourne15y ago

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

MMikeLittleTutor15y ago#1

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

Ssosbourne15y ago#2

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

MMikeLittleTutor15y ago#3

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

Ssosbourne15y ago#4

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.

MMikeLittleTutor15y ago#5

ok - hope you passed the exam