How to translate the financial statements of a foreign subsidiary under IAS 21

Statement of Financial Position

At the end of the financial year, the SOFP of the overseas subsidiary will be translated using the closing rate (i.e. the exchange rate at the date of the balance sheet)

For opening net assets, these were translated in last year’s financial statements at last year’s closing rate and must be retranslated for this year’s financial statements at this year’s closing rate.

If there’s goodwill, the cost of investment in the parents financial statements is a non-monetary asset and is recorded at the historic rate. For the purposes of calculating goodwill the cost of investment and the fair value of the net assets acquired are retranslated to the closing rate

Statement of Comprehensive Income

In the income statement the revenue and expenses are translated at the average rate for the year (rate at date of transactions if significant fluctuations in exchange rate) and are retranslated to the closing rate in the statement of financial position.