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CMA Final · Corporate Financial Reporting · The Effects of Changes in Foreign Exchange Rates (Ind AS 21)

Under Ind AS 21, when a foreign operation is disposed of, what happens to the cumulative exchange differences on translation previously recognised in other comprehensive income and accumulated in a separate component of equity?

On disposal of a foreign operation, the cumulative translation differences held in a separate component of equity are reclassified to profit or loss as a reclassification adjustment, at the time the gain or loss on disposal is recognised.

  1. AThey are reclassified from equity to profit or loss when the gain or loss on disposal is recognisedCorrect
  2. BThey remain in equity permanently
  3. CThey are adjusted against goodwill
  4. DThey are transferred to retained earnings directly

Explanation

Ind AS 21 requires cumulative translation differences relating to the foreign operation to be reclassified from equity to profit or loss as a reclassification adjustment when the gain or loss on disposal is recognised. Leaving them in equity or moving them to retained earnings is incorrect.

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