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Hi Mike,
I would like to ask about the treatment when you retranslating a foreign sub net asset
Good will is at closing rate as it is asset
How about G/W impairment loss? I have been traslating at average rate but I saw one example in bpp they translate at closing rate.
Please confirm. Thank you!
If you’ve worked through the example in the course notes (Grainger and Malfoy) I think you’ll find that I also translate each year at closing rate
Is it a rule or is it specified anywhere in IAS21? As i thought impairment loss in a P/L item, therefore it should be translated at average rate?
Average rate. All P/L items. Unless i know the rate at the day of transactions took place
But that means that you’re translating depreciation on the statement of income at average rate and deducting it from the asset at closing rate? Is that correct?
Ah….. I see what you mean here.
However I’m still confused.
For subsidiary assets, we translate (from sub’s SOFP) at closing rate and that’s done. Because any depreciation is charged in the sub R.E and finally we translate the post R.E at average rate.
But for Goodwill, since we recognized it in our SOFP since acquisition, at the reporting date its value maybe different due to exchange rate change, so we have to translate again at closing rate. Impairment loss happens through out the year so translate at average rate. then any difference is FX gain/loss. Correct?
Opening GW @ opening rate
less impairment loss @ average rate
FX gain/loss (balance)
= closing GW @ closing rateThis is the method I was told in the revision class of one lecturer. I find this in conflic with your method. I wonder if there is any rules on this or is it subject to flexibility?
I have to say that it’s open to flexibility! By applying the equation:
Opening net assets @ opening rate (as translated)
+
Retained earnings for the year as translated
+/-
exchange difference (balancing figure)
=
Closing net assets at closing rate (as translated)I don’t remember seeing an example where the goodwill in the foreign subsidiary was impaired in the year in question!
There is no impairment in the subsidiary’s records and none in the subsidiary’s statement of profit or loss. Goodwill is a consolidation adjustment, not something that is accounted for in the subsidiary’s records. So there’s no translation involved!
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