Subsidiary Translations- Presentation Currency Method in a Nutshell

Hi all,

 

Today we are going to translate Subsidiary's financial statements as per IAS 21 Presentation currency Method. This scenario typically arises in multinational corporations where the parent company consolidates financial statements from subsidiaries operating in different countries with various functional currencies​​​.

The use of the Presentation Currency Method allows the financial statements of foreign subsidiaries to be translated from their functional currencies to the parent company's chosen presentation currency. This translation is necessary for stakeholders to understand the overall financial position and performance of the multinational entity in a consistent currency​​.

 

Example Excel: View/Download

Let’s break down the process for translating foreign subsidiaries’ financial statements using the IAS 21 guidelines. Our goal is to make this approach clear and straightforward:

Begin by categorizing the financial data into specific groups: Profit and Loss (P&L), Non-Current assets, Current Assets, Non-Current liabilities, and Current Liabilities. Exclude Net assets in this step.

Next, divide the foreign currency amount of each item by the relevant exchange rate. Your translations are FINISHED for the above mention items!

Translating Net Assets

You have to translate everything in 2 steps: Begin with the net assets’ opening balance. This includes the cumulative values of Equity, Retained Earnings, and Reserves at the start of the reporting period.

Proceed by translating Retained Earnings and all reserves for the current year. For Profit and Loss (P&L) items, utilize the average exchange rate, while for items on the Statement of Financial Position (SOFP), employ the closing rate. Remember to exclude historic Equity, Premium, and New Issues (as we’ve already addressed them in the opening balance step) and make sure to use only the current year’s balances for Equity & all reserves, not the closing balances.

Voila!! If you followed the video instructions accurately, you’ve successfully translated the entire set of financial statements. Remember, consistency and attention to detail are key in this process.

 Included a well-organized list of items categorized into monetary and non-monetary items, along with their applicable exchange rates, as it is a crucial step in the translation process. If you need any further assistance or have additional questions, feel free to ask—I’m here to help!

 

 If you come across any glitches or need further clarification, I’ll reach out promptly. Your responsiveness is greatly appreciated! 😊 

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Note: This can be used for IndAS translations as well.

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