Translation difference and reserve

Learning objectives

• Calculate the translation difference recognised in other comprehensive income and accumulate it in the translation reserve.L2, L3
• Calculate, from the case data, the translated amount or the exchange difference relating to the concept “Translation differences in OCI and translation reserve (39(c), 41)”.L2, L3

Normative references

• IAS 21 §39Translation into a different presentation currency. Current requirement (EU text in force, before the November 2025 amendment): applies to any entity whose functional currency is not the currency of a hyperinflationary economy: (a) assets and liabilities for each statement of financial position presented (including comparatives) at the closing rate at the date of that statement; (b) income and expenses for each statement presenting profit or loss and other comprehensive income (including comparatives) at the exchange rates at the dates of the transactions; (c) the resulting exchange differences in other comprehensive income. Future requirement (November 2025 amendment, para. 60O; annual periods beginning on or after 1 January 2027, earlier application permitted): the introductory sentence covers cases where the functional and presentation currencies differ and are both currencies of non-hyperinflationary economies, translation into a hyperinflationary presentation currency being dealt with by added paragraphs.
• IAS 21 §41The exchange differences in para. 39(c) result from (a) translating income and expenses at the exchange rates at the dates of the transactions and assets and liabilities at the closing rate, and (b) translating the opening net assets at a closing rate that differs from the previous closing rate; they are not recognised in profit or loss because the changes in exchange rates have little or no direct effect on present and future cash flows from operations; their cumulative amount is presented in a separate component of equity until disposal of the foreign operation. For a consolidated foreign operation that is not wholly owned, the portion of the cumulative amount attributable to non-controlling interests is allocated to them in the consolidated statement of financial position.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

3 questions

• When translating the statements of a foreign operation into the presentation currency, where are the translation differences recognised?L2
• The American subsidiary of Villard has opening net assets of {opening_net_assets}, makes a profit of {profit} and has closing net assets of {closing_net_assets} (case convention: no dividend or contribution). Rates: 0.90 euro at the opening date, 0.92 euro on average for the profit, 0.95 euro at the closing date. Calculate the translation difference for the year in euros.L3
• When translating the statements of its foreign subsidiary, the Ramel group obtains a credit translation difference of {translation_difference} for the year. Post the entry recognising this difference.L3