Exchange rate adopted by subsidiary is differed from group exchange rate in group consolidation?
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In group consolidation, group exchange rates are adopted to convert foreign subsidiares assets, liabilities and P&L. Problem arise when subsidiaries which need to follow a goverenment deternmined exchange rate (E.g. Thailand needs to follow the Bank of Thailand exchange rate). Exchange difference arise in elimination of intra-group receivable and payable. Can anyone advise what is the generally accepted international accounting treatment for the above? Say for example, a parent company and a subsidiary has HKD and THB respectively as its functional currency. And the group presentation currency is also in HKD. There is USD1m intercompany payable from the subsidiary. The parent company booked the receivable using the group USD to THB rate of 30.00 whereas the subsidiary booked the payable using Bank of Thailand rate of 34.00. So, how are we going to deal with such exchange difference?
Exchange rate adopted by subsidiary is differed from group exchange rate in group consolidation?1st, if the parent co.'s functional currency is HKD and the group's presentation currency is also HKD, the USD1m loan would have been recorded in HKD in the parent's books cos that's its functional currency. In the parent's books, the THB rate is irrelevant.
2nd, you should be guided by IAS 21 The Effects of Changes in Foreign Exchange Rates.
The Thai sub. has THB as its functional currency and has to translate its whole set of financial statements to the group presentation currency, HKD. The foll. paras are relevant to the Thai sub.:
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