Consolidating financial statements example
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 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.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.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.If the German subsidiary does NOT sell the inventories to the parent, but keeps them at its own warehouse – what would their amount for the consolidation purposes be?
You still need to eliminate intragroup balances and transactions, including unrealized profits on intragroup sales and any dividends paid by a subsidiary to a parent. Just a small note: please, do not mess up a functional currency with a presentation currency. It’s a full IFRS learning package with more than 40 hours of private video tutorials, more than 140 IFRS case studies solved in Excel, more than 180 pages of handouts and many bonuses included. Its functional currency is in most cases GBP (exceptions exist), but this company can decide to prepare its financial statements in EUR or USD – they will be the presentation currencies.You would need to translate them using the closing rate, isn’t it?Therefore, their amount would be EUR 4 500 (German cost of sales) * 0,8562 (closing rate) = 3 853.In today’s world, most groups spread their activities abroad and logically different members of the group operate in different currencies.Is the consolidation process of combining the financial statements of two (or more) companies different when they operate in different currencies? If you want to combine the financial statements prepared in different currencies, you will still follow the same consolidation procedures.