Consolidation / Elimination

Consolidation / Elimination

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Hi,

I work in a very small subsidiary of a very large multinational.

Struggling to get an answer internally to this question and wondered if anyone here could help.  The question is in regard to preparing group accounts, particularly the elimination of sales. 

The text books say:

At the group level, each entities results are translated to the presentation currency.

Then comes the usual consolidation adjustments. 

In order to eliminate sales, where all entities share the same currency it is easy, Debit Sales, Credit Cost of Sales (both being the same value).

When there are 2 functional currencies involved, the Seller, the buyer, and a different presentational currency, and consolidation takes place each month afresh (year to date) using an annual average exchange rate how is the resulting imbalance treated?

Example:  The seller In January sold $100k, the buyer recorded in cost of sales @ £67k x/r 1.4925, then in December the avg x/r was 1.6, so the sales elimination relatated to the usd entity would be £62.5k (or equivelant in presentational currency), but the GBP entity would be reporting £67k..  resulting £4.5k currency movement.  Is this recorded in the income statement as currency movement, or in equity as part of currency translation adjustment? 

My predesscor always made sure what we reported to group matched with our counterparty at the YTD exchange rate, (e.g. at Dec report to group £62.5k) which i think is wrong?

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By videfa
20th Nov 2013 18:34

group elimination

The accounting standards do not clearly define what needs done. However for simplicity we tend to follow what your predecessor does - match the exchange rate so that the net effect is zero - which in essence is the true reflection of the transaction. An alternative case is to use whatever rate is used in the individual subsidiary accounts but on consolidation balance them off and post the difference to fx differences.

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