This is different from the situation when they are in the UK’s books. The UK parent acquired a German subsidiary on 3 January 2015 when the subsidiary’s retained earnings amounted to EUR 4 000.
On 30 November 2016, the UK parent purchased goods from the German subsidiary for EUR 5 000.
It is translated at the transaction date rate, i.e. At the reporting date (), the consolidated financial statements show: Please note the little trick here.
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.
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.
If you take action today and subscribe to the IFRS Kit, you’ll get it at discount! Please note that the above table applies when neither functional nor presentation currency are that of a hyperinflationary economy.
Actual rates are the rates at the date of the individual transactions, but you can use the average rate for the year if the actual rates do not differ too much.