IAS 21 - Foreign Currency Subsidiaries

Question 1

Key Examinable Issues

Answer 1

Key points to remember:

• Profit or loss and other comprehensive income items are translated at the AVERAGE RATE each year.
• Assets and Liabilities are translates at the CLOSING RATE each year.
• Exchange differences that arise on the retranslation of the subsidiary (on net assets and goodwill) are recognised within Other Comprehensive Income on the group accounts.
• The exchange differences on net assets is attributed between parent shareholders and NCI based on their percentage holdings.
• The exchange difference on goodwill will be attributed as:
  
  • All to parent shareholders IF NCI is measured using proportion of net assets.
  • Between parent and NCI (based on %) if NCI is measured at fair value.
  • This is consistent with the treatment of goodwill impairment.

Question 2

Calculation of annual exchange differences on translation for Net Assets and Goodwill.

Answer 2

Exchange differences on Net Assets for the year:
Closing net assets at CR (closing rate)
less: Opening Net assets at OR (opening rate)
less: Comprehensive income at AR (avg rate)

= Exchange gain/(loss)

Exchange differences on Goodwill for the year:
        Closing goodwill at CR
less: Opening Goodwill at OR
add: Impairment at stated rate.
= Exchange gain/(loss)