Miscellaneous items – Ind AS 21

Intra-group transactions

While following the normal consolidation process, intra-group balances and intra-group transactions of a subsidiary are eliminated, thereby incorporating the results and the financial position of the foreign operation with that of the reporting entity.

However, when an intra-group monetary item is eliminated against the corresponding intra-group asset or liability, an exchange difference would emerge in the consolidated financial statements. 

The entity is exposed to a foreign exchange gain or loss arising on account of converting the monetary items.   All the exchange differences arising on account of consolidation are reported in the profit and loss account only unless the exchange differences arising on account of a monetary item forming part of the reporting entity’s net investment in a foreign operation is recognised.

In the consolidated financial statements

The exchange differences are recognised in profit and loss account in the consolidated financial statements of the reporting entity normally.  However, exchange differences arising on account of a monetary item forming part of the reporting entity’s net investment in a foreign operation should be recognised in the profit and loss account in the separate financial statements of the reporting entity or the individual financial statements of the foreign operation as appropriate. 

Where foreign operation is a subsidiary

In the consolidated financial statements where the foreign operation is a subsidiary, such exchange differences as mentioned above shall be recognised initially in other comprehensive income and classified from equity to profit and loss account on disposal of the net investment.

On the disposal of a foreign operation, the accumulative amount of exchange differences relating to that foreign operation, recognised in other comprehensive income and accumulated in the separate component of equity, shall be reclassified from equity to profit and loss account as a reclassification adjustment when the gain or loss on disposal is recognised. 

Different end for reporting periods

For tax reasons or other regulatory reasons, as necessitated by the statute of the country in which the foreign operation is carried out, such foreign operation may have different end of the reporting period.  It is a normal practice for the foreign operation to prepare additional statements till the same date as the reporting entity, to facilitate incorporating the same in the consolidated financial statements. 

As per Ind AS 27 – Consolidated and separate financial statements, different end of the reporting period is allowed, provided the difference is not greater than three months and adjustments are made for any significant transactions between the different ends of the reporting periods.  Where the reporting period is within the three months criteria mentioned above, the assets and liabilities of the foreign operation are translated at the exchange rate as at the end of the reporting period.  Subsequently, adjustments are made for any significant movement in exchange rates upto the end of the reporting period of the entity.

Goodwill and fair value transactions

Fair value adjustments to the carrying amount of the assets and liabilities arising due to the acquisition of a foreign operation as well as any goodwill that arises on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and are translated at the closing rate.

Disposal of foreign operation

An interest in a foreign operation may be disposed of either fully or partially by several means including sale, liquidation, repayment of share capital etc.  Impairment losses recognised by an investor or any other write down of the carrying amount of the foreign operation caused due to its own losses or for any other reason does not constitute a partial disposal.  At the time of write down, as mentioned above, foreign exchange gain or loss, if any, which are earlier recognised in other comprehensive income is not reclassified to profit and loss account.

Deemed as disposals

The following are accounted for as disposals even if the entity retains an interest in the former subsidiary, associate or jointly controlled entity:

  • the loss of control of a subsidiary that includes a foreign operation
  • the loss of significant influence over an associate that includes a foreign operation
  • the loss of joint control over a jointly controlled entity that includes a foreign operation

Treatment of disposals

Whenever a foreign operation is disposed of, the cumulative amount of exchange differences that arise on account of translation that are originally recognised in the other comprehensive income and accumulated as a separate component of equity relating to that foreign operation, are reclassified from equity to profit and loss account.

Partial disposal

Whenever there is a partial disposal of foreign operation in the form of subsidiary, the proportionate share of the cumulative amount of exchange differences that are originally recognised in other comprehensive income shall be attributed to non-controlling interests in that foreign operation.

In any other partial disposal of a foreign operation, the entity should reclassify to profit and loss account only the proportionate share of the cumulative translation amount of exchange differences that are originally recognised in other comprehensive income. 

Debt instrument measured at FVOCI

Debt instrument measured at FVOCI For financial assets that are debt instruments measured at FVOCI, both the amortised cost and the fair value of the instrument are relevant. The reason for this is the objective of categorising a debt instrument as FVOCI is that both the contractual cash flows characteristic and …
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