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Group accounting – Foreign currency

Consolidation of a foreign operation

1.1 Background

The functional currency used by a subsidiary to prepare its own individual accounting
records and financial statements may differ from the presentation currency used for
the group financial statements.

The financial statements of an overseas subsidiary must therefore be translated into
the group’s presentation currency.

1.2 Translating the financial statements

The rules for translating an overseas subsidiary into the presentation currency of the
group are as follows:

Incomes, expenses and other comprehensive income are translated
at the rate in place at the date of each transaction. The average rate for
the year may be used as an approximation.

Assets and liabilities are translated at the closing rate of exchange.

Illustrations and further practice

Now try Illustration 1 from Chapter 22.

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