Question

Dulcinea has a subsidiary operating in Spain.

a. Assume that the subsidiary's functional currency is the Euro. What method would Dulcinea use to account for the restatement of their financial statements and wherein the financial statements would any adjustment be reported?

b. Assume that the subsidiary's functional currency is the US dollar. What method would Dulcinea use to account for the restatement of their financial statements and wherein the financial statements would any adjustment be reported?

Answer 1

As per IND AS 21,where any foreign operation(branch,subsidiary,joint venture) has its own functional currency other than that of its parent ,it is not an extension of business of parent entity,

accounts of subsidiary shall be converted to functional currency of holding company for purpose of consolidation.

in the case (a) dulcinea has its subsidiary in spain which is not extension of its own business hence having its own functional currency in Euro.THerefore,for the purpose of consolidation by parent euro will be converted to dollars (parent's currency).Dollars would be called presentation currency.Conversion adjustments will be transferred to a separate account in shown as a line item profit and loss named FOREIGN CURRENCY TRANSLATION RESERVE.

in case (b)since subsidiary and parent currency is same i.e.,dollars no conversion would be required.The results of subsidiary will be straighaway consolidated with that of parent.