Consolidating balance sheet example
Be careful – this is the translation of a foreign currency payable to a functional currency, hence nothing to do with the consolidation.
Re-translated payable amounts to EUR 11 680 (10 000/0,8562) and the German subsidiary records the foreign exchange gain of EUR 50: When the German company translates its financial statements to a presentation currency, then the intragroup trade payable of EUR 11 680 is translated to GBP using the closing rate of 0,8562 – so, it amounts to GBP 10 000 (11 680*0,85618). The only difference is that there was no intragroup sale of inventories.
If the equity balances result from income and expenses presented in OCI (e.g.
revaluation surplus), then it’s more appropriate to translate them at the rate at the transaction date.
It’s true that the standard IAS 21 is silent on this matter. Some time ago, the exposure draft proposed to translate the equity items at the closing rate, but it was not included in the standard. It’s a full IFRS learning package with more than 40 hours of private video tutorials, more than 140 IFRS case studies solved in Excel, more than 180 pages of handouts and many bonuses included.
Is the consolidation process of combining the financial statements of two (or more) companies different when they operate in different currencies? If you want to combine the financial statements prepared in different currencies, you will still follow the same consolidation procedures.
It is translated at the transaction date rate, i.e. At the reporting date (), the consolidated financial statements show: Please note the little trick here.