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ACCA Strategic Professional · Strategic Business Reporting (International) · Foreign transactions and entities

Zeta, a parent whose functional and presentation currency is the dollar ($), owns a subsidiary whose functional currency is the euro (€). Under IAS 21, at which rate should the subsidiary's closing statement of financial position assets and liabilities be translated into dollars on consolidation?

Assets and liabilities of a foreign operation are translated at the closing rate at the reporting date. Income and expenses use transaction-date rates, often approximated by an average rate. Historical rates are not used for the statement of financial position when translating into a different presentation currency.

  1. AThe closing rate at the reporting dateCorrect
  2. BThe average rate for the year
  3. CThe historical rate at the date each asset was acquired
  4. DThe rate at the date the subsidiary was acquired

Explanation

IAS 21 requires all assets and liabilities of a foreign operation, whose functional currency differs from the presentation currency, to be translated at the closing rate. Historical rates apply to non-monetary items only for a foreign-currency entity whose functional currency is the same as the parent's, not here. Average rate is used for income and expenses as an approximation.

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