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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Replies (3)
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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.
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.