Consolidating foreign currency subsidiaries Sexpoths
As defined in ASC 830, there are two broad classes of foreign operations that need to be identified in order to determine the functional currency.
The translation adjustment is an inherent result of this process, in which balance sheet and income statement items are translated at different rates.
ASC 830 establishes these steps: Foreign currency translation is more than a simple mechanical exercise.
A thorough understanding of ASC 830 or IAS 21 is required, and many aspects of this process require significant management judgment, especially as it relates to determining the functional currency of the subsidiary.
This elimination needs to be recorded until the asset is subsequently sold by the consolidated group.
The logic behind this elimination entry is simple: you cannot make a consolidated profit by selling product to yourself.
A common example of when this can occur is when the parent may record an intercompany trade receivable due from a European subsidiary in U. dollars while the European subsidiary records the trade payable balance in a different functional currency (e.g. At the end of a reporting period, the receivable and payable may not equal due to differences in the FX rate that is used.