Section 30 – Disclosures

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Section 30 – Disclosures – Foreign Currency Translation

Example 18 – Extract from notes to the accounting policies

The company has chosen to present the financial statement in a currency that differs from its functional currency so that it can be easily consolidated into the parent company’s financial statements. The functional currency of the company is XXXX

Extract from the financial statements – operating profit note

OPERATING PROFIT

Operating profit is stated after charging/(crediting):

  2015   2014
  €   €
Depreciation 149,999   170,037
Directors’ remuneration: 212,000   225,600
Impairment of goodwill (included within administrative expenses) –   –
Foreign exchange gain/loss –   –
Impairment of investment in subsidiary/associate/joint venture –   –
Reversal of impairment of property, plant and equipment (included within administrative expenses) See note 1 –   –
Reversal of impairment of goodwill/intangibles (included within administrative expenses) –   –
Reversal of impairment of inventory (included within cost of sales) –   –
Impairment of inventory (included within cost of sales) –   –
Inventory recognised as an expense –   –
Auditors’ remuneration      
Audit 13,000   13,000
Non audit services 3,000   3,000
Tax Advisory 3,225   3,225

Extract from other comprehensive income showing foreign exchange differences on retranslation

Consolidated Statement of Comprehensive Income

Profit for the financial year      1,000,000         500,000
Cash flow hedges    
–     effective portion of changes in fair value to cash flow hedges    9       XXX             XXX
–     fair value of cash flow hedges transferred to income statement  10       XXX             XXX
Actuarial loss in respect of the defined pension scheme 11     (XXX)          (XXX)
Exchange differences on retranslation of subsidiary undertakings             XXX          (XXX)
Gain/(loss) on revaluation of intangible assets 12        XXX          (XXX)
Gain/(loss) on revaluation of property, plant and equipment 13        XXX          (XXX)
Gain/(loss) on revaluation of subsidiaries, associates, etc. 14        XXX          (XXX)
Deferred tax on components of other comprehensive income 15        XXX             XXX
     
Total other comprehensive income for the year net of tax         200,000       (100,000)
     
Total comprehensive income for the year      1,200,000         400,000

 

Total comprehensive income for the financial year attributable to:    
     
Owners of the parent company             XXX

                       

            XXX

                       

       1,200,000         400,000
     

Example of a change of functional currency due a change in circumstance i.e. adjusted prospectively

1) Change in functional currency      
The company changed functional currency from Sterling (“£”) to United States Dollar (“US$”) on 31 December 2014. This change arose as a result of the acquisition of the company by a larger group. As a result a change was made to the cost and funding structure such that the primary economic environment in which the company operates resulted in a change in functional currency to US$.  
       
The 2014 results and financial position for comparative purposes were retranslated to US$ as follows:
               

– Assets and liabilities at the closing rate of 1.6184 as at 31 December 2014

    
               

– Income and expenses for 2014 are retranslated at the 2014 average rate of 1.6259

    
               

– All resulting exchange differences were recognised as a separate component of equity, described as the exchange rate reserve.

          
 

Restated

            
  2014 2014          
  US$ GBP          
               
Turnover 237,601 146,134          
               
Cost of sales (220,264) (135,471)          
               
Gross profit 17,337 10,663          
               
Administrative expenses (16,066) (9,882)          
Other operating income – –          
               
Operating profit 1,270 781          
               
Interest receivable – –          
Interest payable and similar charges (355) (218)          
               
Profit on ordinary activities before taxation 916 563          
               
Tax on profit (416) (256)          
               
Profit / (loss) for the financial period after taxation 499 307          
   
 

Balance sheet Restated  
  2014 2014
  US$ GBP
Fixed assets    
Tangible assets 5,637 3,483
Investments 8,810 5,443
     
  14,447 8,927
Current assets    
Debtors 387,831 239,641
Cash at bank and in hand 32,999 20,390
     
  420,831 260,031
     
Creditors: amounts falling due within one year (255,617) (157,946)
     
Net current assets 165,214 102,086
     
Creditors: amounts falling due after more than one year (5,273) (3,258)
Provision for liabilities (1,900) (1,174)
     
Net assets 172,488 106,581
     
Capital and reserves    
Called-up share capital 6 3
Other reserve 64,548 39,884
Profit and loss account 107,935 66,693
     
Equity shareholder’s funds 172,488 106,581
     

 

1  Prior year adjustment due to a change in functional currency    
                   
Historically, financial statements for the company were prepared on the basis that the £ sterling was the functional currency of the entity. During the current year the directors considered further the functional currency and have determined that the euro is, and always was, the functional currency that most accurately portrays the economic results of the company and thereby achieves the objective of foreign currency translation. As a result, the financial statements for the year ended 31 December 2015 are prepared in euro and the comparative numbers restated.
                   
The 2014 results and financial position for comparative purposes were restated to euro as follows:
                   
-Assets and liabilities which were denominated in euro are shown at the actual euro balance at 31 December 2014 and non euro denominated balances were retranslated at the year end spot rate
                   
-Income and expenses for 2014 are shown at the actual euro amounts that were incurred and any non euro balances were retranslated at the average rate for the year.
                   
-All resulting differences were recognised in profit and loss reserves brought forward.
                   
Balance Sheet          
          As restated
      2014   2014
      £   €
Creditors: amounts falling due within one year          
Amounts owed to group undertakings               (14,183)          (22,953)
‘A’ preference shares               (85,972)        (152,165)
           
Creditors: amounts falling due after more than one year        
‘B’ preference shares                   (416)              (666)
           
Profit and loss account reserves brought forward           (100,623)        (175,875)
           
Profit and Loss Account          
           As restated
                   2,014             2,014
       £    €
           
Administrative expenses                    120                (21)
           
Interest payable and similar charges                 (4,159)            (8,219)
           
Loss for the financial year                 (4,039)            (8,241)
                 
     

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