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F2: Advanced Financial Reporting

CHAPTER 18 – FOREIGN CURRENCY TRANSLATION

18.1 –$550,000

To calculate the gain or loss from translating a foreign subsidiary’s goodwill, the
goodwill calculation will be required in the functional currency of the foreign
subsidiary (Weezer).

The total exchange difference on goodwill is calculated by comparing the
goodwill at the closing rate to the goodwill at the acquisition rate. As the
acquisition occurred at the start of the year, this also equates to the annual
foreign currency gain or loss on goodwill.

Exchange difference

$000
Closing goodwill (W1) @ closing rate 2,200
(W1,100 × 2)
Less: Opening goodwill @ acquisition rate (2,750)
(W1,100 × 2.50)
––––––
Foreign exchange loss (550)

(W1) Goodwill

W000
Consideration ($8.5m/2.50) 3,400

Add: NCI @ FV 400
Less: FV NA @ acqn (2,200 + 500) (2,700)
–––––––
Goodwill @ acqn 1,100

The goodwill will then be translated at the closing rate $2.0/W1 = W1,100,000 ×
2.0 = $2,200,000.

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