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Consolidating subsidiaries with different year ends

You still need to eliminate the share capital and pre-acquisition profits of a subsidiary with parent’s investment in a subsidiary (plus recognize any goodwill and/or non-controlling interest). We need to follow the rules in IAS 21 The Effects of Changes in Foreign Exchange Rates for translating the financial statements to a presentation currency.

You still need to eliminate intragroup balances and transactions, including unrealized profits on intragroup sales and any dividends paid by a subsidiary to a parent. Just a small note: please, do not mess up a functional currency with a presentation currency. It’s a full IFRS learning package with more than 40 hours of private video tutorials, more than 140 IFRS case studies solved in Excel, more than 180 pages of handouts and many bonuses included. Its functional currency is in most cases GBP (exceptions exist), but this company can decide to prepare its financial statements in EUR or USD – they will be the presentation currencies.

This is different from the situation when they are in the UK’s books. The UK parent acquired a German subsidiary on 3 January 2015 when the subsidiary’s retained earnings amounted to EUR 4 000.

On 30 November 2016, the UK parent purchased goods from the German subsidiary for EUR 5 000.

Is the consolidation process of combining the financial statements of two (or more) companies different when they operate in different currencies? If you want to combine the financial statements prepared in different currencies, you will still follow the same consolidation procedures.Therefore, the share capital amounts to GBP 78 000, rather than GBP 82 340.If the equity balances result from the transactions with shareholders (for example, share premium), then it’s appropriate to apply the historical rate consistently with the rate applied for the share capital.If you take action today and subscribe to the IFRS Kit, you’ll get it at discount! Please note that the above table applies when neither functional nor presentation currency are that of a hyperinflationary economy.Actual rates are the rates at the date of the individual transactions, but you can use the average rate for the year if the actual rates do not differ too much.The cost of goods sold for the German subsidiary was EUR 4 500.The profit shown in German books is the unrealized profit for the group (as the goods are unsold from the group’s perspective).If not, then apply the average rates for the period. Here, IAS 21 is silent again, but in my opinion, the most appropriate seems to apply the rate ruling at the transaction date. So, let’s say the German subsidiary sold the goods to the UK parent on 30 November 2016 for EUR 5 000.They remain unsold in the UK warehouse at the year-end.It’s true that the standard IAS 21 is silent on this matter. Some time ago, the exposure draft proposed to translate the equity items at the closing rate, but it was not included in the standard. It’s a full IFRS learning package with more than 40 hours of private video tutorials, more than 140 IFRS case studies solved in Excel, more than 180 pages of handouts and many bonuses included.It means that in most cases, companies decide whether they apply closing rate or historical rate. In my own past practice, I’ve seen both cases – closing rates and historical rates, too. If you take action today and subscribe to the IFRS Kit, you’ll get it at discount! Let me describe what’s the most appropriate in my opinion, but please remember, that it results from the practice and common sense, not from the rules (as there are none).

865 comments

  1. Example Consolidation with. provision when consolidating foreign subsidiaries between P&L. if subsidiary accounting year is different with.

  2. Also entities such as partnerships could be subsidiaries and therefore. Different accounting dates. profit for the year £150 x 80% = £120. The consolidation.

  3. Presentation of consolidated financial statements is a compulsory requirement for a parent company that commands majority stakes in one or more subsidiaries.

  4. You need to do a consolidation for last year for the comparatives and for the previous year if the group needs a cash flow. For different year-ends, you'll need.

  5. How do you consolidate subsidiaries with different year ends? Are we required to adjust accounts of the subsidiaries to match the parent entity?

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