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The relevant exchange rates: At the date of transaction, German subsidiary recorded the payable at EUR 11 730 (10 000/0,8525).On 31 December 2016, German subsidiary translates this monetary payable by the closing rate in its own financial statements.For the share capital, the most appropriate seems to apply the , rather than the historical rate applicable when the share capital was issued.The reason is that it’s easier and logical to fix the rate at the date of the acquisition when the goodwill and/or non-controlling interest are calculated.The exchange rates were 0,8234 GBP/EUR on 10 September 2010, and 0,78 GBP/EUR on 3 January 2015.When the UK parent translates German financial statements to GBP for the consolidation purposes, the share capital will be translated at the historical rate applicable on 3 January 2015.If the equity balances result from income and expenses presented in OCI (e.g.
Re-translated payable amounts to EUR 11 680 (10 000/0,8562) and the German subsidiary records the foreign exchange gain of EUR 50: When the German company translates its financial statements to a presentation currency, then the intragroup trade payable of EUR 11 680 is translated to GBP using the closing rate of 0,8562 – so, it amounts to GBP 10 000 (11 680*0,85618). The only difference is that there was no intragroup sale of inventories.
For example, let’s say that the German company was established on 10 September 2010 with the share capital of EUR 100 000.
Then, on 3 January 2015, the German company was acquired by the UK company.
You can eliminate it with the UK parent’s receivable of GBP 10 000. Instead, the UK parent provided a loan to the German subsidiary of GBP 10 000.
However, there will still be exchange rate gain of EUR 50 reported in the subsidiary’s profit or loss. Let’s say that the settlement of the loan is not likely to occur in the foreseeable future and therefore, the loan is a part of the net investment in a foreign operation.
You would need to translate them using the closing rate, isn’t it?