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Consolidated retained earnings multi currency

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Hi all,

 

I'm new into a role where we have multiple subsidies in the US and Europe, and a question has come up about the treatment of subsidiary retained earnings at year end.

 

The issue being, last year our retained earnings were, say £500k GBP in our consolidated group accounts. Since the end of the year, if we applied the latest closing BS exchange rate, consolidated retained earnings would be now £550k GBP, whereas the actual figure in each entity has not moved, of course.

 

My question, as I can't see any clear guidance through international standards - how do we treat this type of valuation/movement? My initial thought is that, regardless of the closing rates, the retained earnings should still consolidate at £500k GBP, and therefore the imbalance in the TB caused by this should be corrected with a "charge" (well, Excel adjustment in our consolidation pack!) to the P&L, as an impact of currency translations. So in this instance an additional £50k credit to the P&L. 

 

Thoughts anyone?

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By thevaliant
05th Aug 2021 11:22

Got the same situation.

Rightly or wrongly, I retranslate at the new rate, and then run £50k through a Forex reserve on the Statement of Changes in Equity.

So opening reserves still £500k
Forex movement £50k
Closing reserves £550k

(assuming no other activity of course - my subs trade so there is the regular P&L movement as well).
I don't run the £50k through P&L. I think that's wrong.

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By paul.benny
05th Aug 2021 11:47

Agree with thevalliant and, more importantly, so do the accounting standards.

It's covered (surprisingly briefly) in IAS21 para32 and FRS102 s30.12-30.13.

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Replying to paul.benny:
Flag of the Soviet Union
By thevaliant
05th Aug 2021 15:16

Phew!

I've been getting it right then......

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