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[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section admin_label=”Section” fullwidth=”off” specialty=”off”][et_pb_row admin_label=”Row”][et_pb_column type=”1_2″][et_pb_text admin_label=”Text” background_layout=”light” text_orientation=”center” text_font_size=”14″ use_border_color=”off” border_color=”#ffffff” border_style=”solid”] [button link=”http://www.frs102.com/members/premium-toolkit/” type=”big” color=”red”] Return to Main Index[/button] [/et_pb_text][/et_pb_column][et_pb_column type=”1_2″][et_pb_text admin_label=”Text” background_layout=”light” text_orientation=”center” text_font_size=”14″ use_border_color=”off” border_color=”#ffffff” border_style=”solid”] [button link=”http://frs102.com/members/premium-toolkit/section-30/” type=”big” color=”red”] Return to Section 30 Home[/button] [/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section admin_label=”Section” fullwidth=”off” specialty=”off” transparent_background=”off” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” padding_mobile=”off” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off” gutter_width=”3″][et_pb_row admin_label=”Row”][et_pb_column type=”4_4″][et_pb_text admin_label=”Main Body Text” background_layout=”light” text_orientation=”justified” use_border_color=”off” border_color=”#ffffff” border_style=”solid”]Use of a presentation currency other than the functional currency
Extract from FRS102: Section 30.17-30.21
30.17 An entity may present its financial statements in any currency (or currencies). If the presentation currency differs from the entity’s functional currency, the entity shall translate its items of income and expense and financial position into the presentation currency. For example, when a group contains individual entities with different functional currencies, the items of income and expense and financial position of each entity are expressed in a common currency so that consolidated financial statements may be presented.
30.18 An entity whose functional currency is not the currency of a hyperinflationary economy shall translate its results and financial position into a different presentation currency using the following procedures:
(a) assets and liabilities for each statement of financial position presented (i.e. including comparatives) shall be translated at the closing rate at the date of that statement of financial position;
(b) income and expenses for each statement of comprehensive income (i.e. including comparatives) shall be translated at exchange rates at the dates of the transactions; and
(c) all resulting exchange differences shall be recognised in other comprehensive income.
30.19 For practical reasons, an entity may use a rate that approximates the exchange rates at the dates of the transactions, for example an average rate for the period to translate income and expense items. However, if exchange rates fluctuate significantly, the use of the average rate for a period is inappropriate.
30.20 The exchange differences referred to in paragraph 30.18(c) result from:
(a) translating income and expenses at the exchange rates at the dates of the transactions and assets and liabilities at the closing rate; and
(b) translating the opening net assets at a closing rate that differs from the previous closing rate. When the exchange differences relate to a foreign operation that is consolidated but not wholly-owned, accumulated exchange differences arising from translation and attributable to the non-controlling interest are allocated to, and recognised as part of, non-controlling interest in the consolidated statement of financial position.
30.21 An entity whose functional currency is the currency of a hyperinflationary economy shall adjust its results and financial position using the procedures specified in Section 31 Hyperinflation before applying the requirements of this section.
OmniPro comment
Section 30 provides a choice to entities as to which currency it presents its financial statements in. See the example below showing application of the above guidance.
Example 12: Presentational currency
Company A has a functional currency of CU. It purchased a US company, Company B for FC200,000 on 1 January 2014. The fair value of the net assets at that date was FC150,000 with goodwill of FC50,000 being recognised. The spot rate at 31 December 2013 and 31 December 2014 was FC1=CU0.80c and USFC=CU0.85c. The average rate for the 31 December 2014 and 31 December 2013 year end is FC1=CU0.75c and FC1=CU0.70c respectively.
See below the work required to retranslate Company B’s financial statements from the functional currency of FC to the presentational currency of CU.
Translation of a foreign operation into the investor’s presentation currency
Extract from FRS102: Section 30.22-30.23
30.22 In incorporating the assets, liabilities, income and expenses of a foreign operation with those of the reporting entity, the entity shall follow normal consolidation procedures, such as the elimination of intragroup balances and intragroup transactions of a subsidiary (see Section 9 Consolidated and Separate Financial Statements) and the translation procedures set out in paragraphs 30.17 to 30.21. An intragroup monetary asset (or liability), whether short-term or long-term, cannot be eliminated against the corresponding intragroup liability (or asset) without showing the results of currency fluctuations in the consolidated financial statements. This is because the monetary item represents a commitment to convert one currency into another and exposes the reporting entity to a gain or loss through currency fluctuations. Accordingly, in the consolidated financial statements, a reporting entity continues to recognise such an exchange difference in profit or loss or, if it arises from the circumstances described in paragraph 30.13, the entity shall recognise it in other comprehensive income.
30.23 Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation shall be treated as assets and liabilities of the foreign operation. Thus, they shall be expressed in the functional currency of the foreign operation and shall be translated at the closing rate in accordance with paragraph 30.18.
OmniPro comment
The presentation currency here is likely to be the functional currency of the parent but may not always be the case. Retranslation adjustments of the foreign operation are posted to OCI. On disposal of a foreign operation the amounts recognised remain in OCI, they are not recycled to the profit and loss account. See the example below which illustrates the above points.
Example 13: Consolidation a foreign operations results
If we take example 12 above where we retranslated the subsidiaries FC functional accounts to a presentation currency of CU and now incorporate this into the consolidated financial statements of Company A. In accordance with Section 30.23 any goodwill arising on acquisition of Company B is treated as the assets and liabilities of the foreign operation. Therefore applying this to the example 12 where goodwill of FC50,000 was recognised. In the consolidated financial statements of Company A, this goodwill would have been recognised on 1 January 2014 at the rate on the date i.e. CU40,000 (FC50,000*0.8). The total consideration paid in CU was CU160,000 (FC200,000*0.8)
If we assume the parent company’s balance sheet is simple and only holds an investment in Company B with no costs or income. Then the parent entity balance sheet would look as follows:
| Financial assets | CU160,000 |
| Ordinary shares | CU160,000 |
In the consolidated financial statements goodwill would have to be restated as follows (excluding amortisation)
Goodwill of FC50,000 retranslated at opening rate of CU1=USFC0.80 = CU40,000
Goodwill of FC50,000 retranslated at closing rate of CU1=USFC0.85 = CU42,500
Exchange gain to be added to goodwill & included in OCI CU2,500
Plus exchange difference posted on retranslation of Company B’s financials statements from USD to CU (see example 12 above) CU15,000
Total exchange gain difference posted to OCI in consolidated CU17,500
Balance sheet
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