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R-functional currency CR
M-functional currency $
During the year R purchased raw materials on 1 feb 2004 from parent M at ,$6m at GP margin 20% and denominated the purchase in CR. At the year end 1/2 of raw materials were still in inventory.Goods were recorded at the exchange rate on 1 feb 2004. Payment of $6m made to M when exchange rate was 2.2CR to 1$. Any exchange gain or loss on transaction is still held in current liabilities of R.Exchange rate. CR to $
1 feb 2004. 2
30 april 2004. 2.1
Average rate 2In the solution, on consolidation the exchange loss is included to P/L and added to current liabilities.
I dont understand the logic behind adding the exchange loss to current liability when the balance is already settled. Please advise
Hi,
There would have been an exchange gain/loss on settlement of the transaction and as this is still held in liabilities then it needs to be adjusted for.
Thanks
1)If it is included in liability why r we adding it again?
2)Isnt it wrong to let that exchange loss remain in liability? Shouldn’t that loss be shown under OCI ?
Thanks for ur time
Hi,
The gain/loss should be recorded through profit or loss when the half of it was settled. If it is a loss, then it is a debit balance, and so to remove it we would need to credit the payable hence adding it back.
Don’t get confused with the consolidation of the overseas subsidiary and the recording of individual overseas transactions in the subsidiary. We need to get the subsidiary’s books correct first before then doing the consolidation.
Thanks
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