Dear Members,
I am facing difficulty in foreign exchange translation of inter company payable and receivable accounts.
Suppose we have a Comapny ‘XYZ’, it has its only branch in UAE, which fulfills the requirements of IAS-21 to be labelled as “Foriegn Operation”. As this is branch, it of course has not issued its own share capital.
The Head Office of the company maintains “UAE-Control Account” and UAE branch maintains “Head Office Control Account”. This account is used for payments or reciepts purposes for UAE on behalf of Head Office or Company.
During the year,
Head Office requests UAE for payment on behelf of it, dated 31st July 2009;
In UAE Books:
==DR: Head Office Control Account = 50 Dirhams
=============CR: Bank Account = 50 Dirhams
In Head Office Books:
Suppose $1 = 5 Dirhams
==DR: Expense = $10
=============CR: UAE Control Account= $10
Exchange Loss A/C
@ 31st December 2009, which is year end;
Suppose $1 = 7.5 Dirhams
==DR: UAE Control Account = $3.33
=============CR: Exchange Gain A/C = $3.33
At the time of consolidation of branch, we translate whole trail balance of UAE-branch. We have translated all income and expense items at average rate, and all monetary assets and liabilities at closing rate, the balance between these two is our exchange gain or loss which we will park in “Other comrehensive income”.
Now,
My questions are.
1) Can we take exchange gains or losses on translation of foriegn operation (i.e. branch) to Profit or loss account instead of “Other Comprehensive Income” as per IAS-21?
2) Do we need to seperately recognize exchange gains or losses arising on translation of “Head Office Control Account” because during the whole year we recorded transactions in “Head Office Control Account” at transaction date rate and at the year end we will translate it at closing rate. Isn’t so, we have already parked exchange gains and losses on this account when we translated the whole trial balance of the branch?
I hope some of you will resolve this problem soon.
Thanks & Regards,
Muhammad Amir.