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Consolidating accounts with different year ends

For the share capital, the most appropriate seems to apply the , rather than the historical rate applicable when the share capital was issued.

They remain unsold in the UK warehouse at the year-end.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.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.You still need to eliminate the share capital and pre-acquisition profits of a subsidiary with parent’s investment in a subsidiary (plus recognize any goodwill and/or non-controlling interest). We need to follow the rules in IAS 21 The Effects of Changes in Foreign Exchange Rates for translating the financial statements to a presentation currency.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.Therefore, the share capital amounts to GBP 78 000, rather than GBP 82 340.If the equity balances result from the transactions with shareholders (for example, share premium), then it’s appropriate to apply the historical rate consistently with the rate applied for the share capital.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.

212 comments

  1. How do you consolidate subsidiaries with different year ends? Are we required to adjust accounts of the subsidiaries to match the parent entity?

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