Consolidating a foreign operation - part 1

In this lesson

1. 0:00 Foreign operation consolidation overview
2. 1:02 Translating subsidiary revenue and expenses
3. 2:32 Goodwill and fair value adjustments
4. 3:39 Calculating goodwill in functional currency
5. 4:41 Exchange differences in consolidation
6. 6:52 Apportioning exchange gains to group and NCI
7. 7:27 Working through goodwill exchange gain calculation

About this lesson

This is a core skill for Strategic Business Reporting (SBR) and Advanced Financial Reporting (F2), where consolidation questions frequently test your understanding of exchange rate mechanics and their impact on group accounts. You'll discover the translation rules that apply to different balance sheet and profit and loss items: assets and liabilities at closing rate, share capital and pre-acquisition reserves at historic rate, and post-acquisition profits at average rate. The lesson walks you through a worked example showing how to consolidate revenues and expenses, then moves to goodwill calculation, which must be computed in the subsidiary's functional currency before translating to the parent's presentation currency at year-end rates. The final section covers exchange differences, which arise because different exchange rates are used to translate different items and different periods. You'll learn how to calculate exchange gains or losses on goodwill as a balancing figure, and how to apportion these between the group and non-controlling interests when using the full goodwill method. Understanding these mechanics is essential for answering consolidation questions accurately and confidently in your exams.

Duration: 10m