Foreign transactions and foreign subsidiaries - part 2

In this lesson

1. 0:00 Introduction to foreign currency translation
2. 1:04 Cancelling intragroup transactions and cost of sales
3. 2:16 Exchange gains and losses overview
4. 3:10 Three sources of retranslation gains or losses
5. 5:21 Numerical example: calculating exchange gains
6. 9:33 Summary of translation methodology

About this lesson

You'll discover why certain items like goodwill, profit, and opening net assets get retranslated at year-end, and how to calculate the resulting gains or losses that flow through other comprehensive income. Through worked examples, you'll see exactly how to split these exchange movements between the group and non-controlling interests, ensuring your consolidation statements are accurate and exam-ready. This part builds on translation basics by focusing on the mechanics of retranslation. When you translate a subsidiary's financial statements into the parent's presentation currency, some figures are translated at different rates in different periods. Goodwill, for example, was translated at last year's closing rate but must be retranslated at this year's closing rate—triggering an exchange gain or loss. The same applies to profit (translated at average rate during the year, then retranslated at closing rate on the statement of financial position) and opening net assets (retranslated from opening to closing rate). These three retranslations are the main sources of exchange differences you'll encounter in consolidations. The lesson walks you through a complete numerical example showing how to calculate retranslation gains and losses step by step, then allocate them correctly between the group and non-controlling shareholders. You'll see that these exchange movements don't go to profit or loss—they're recognised in other comprehensive income and presented separately in your consolidated statements. Mastering this process is essential for handling complex group consolidations under IFRS, where every exchange movement must be identified, calculated, and properly disclosed.

Duration: 10m