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ACCA Strategic Professional · Strategic Business Reporting (International) · Group accounting including statements of cash flows

Ivy plc disposes of its entire 100% holding in Jade, a foreign subsidiary with a different functional currency. The cumulative exchange differences on translating Jade, held in a translation reserve, are a $300,000 gain. How is this treated in Ivy's consolidated financial statements on disposal?

On disposal of a foreign subsidiary, the cumulative translation differences held in equity are reclassified to profit or loss as part of the gain or loss on disposal. They are not left in reserves or moved straight to retained earnings.

  1. ALeft in the translation reserve permanently
  2. BReclassified from equity to profit or loss as part of the gain or loss on disposalCorrect
  3. CTransferred directly to retained earnings without passing through profit or loss
  4. DRecognised in other comprehensive income again as a further gain

Explanation

IAS 21 requires the cumulative exchange differences relating to a foreign operation, recognised in OCI and accumulated in equity, to be reclassified to profit or loss when the operation is disposed of. The $300,000 is included in the gain or loss on disposal. Leaving it in reserve or transferring it directly to retained earnings is not permitted.

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