Acquisition of a subsidiary: Currency translation Issue

[marijnbax2]

We are working on the acquisition of a new subsidiary. I am using the
case document :

How to handle the acquisition of a subsidiary
Consolidation Practical Guide
N°1
June, 2011

In there is states to look in the operating guide:

Quote:
"Specific group of tasks to be performed for incoming entities
A specific group of tasks has to be performed for all incoming entities
before running the consolidation of the group. This procedure is
compulsory in order to load and convert properly the net equity of
incoming entities. BPC NW 10.0 Starter kit for
IFRS - Operating guide."

When I look in the operating guide it describes the following:
The first line on Page 29 says:

Quote:

"Enter specific Average and Closing rates (= spot rate) for the incoming
entity (for its reporting currency and for the basis currency) in the exchange rate table of the
previous year end."

in my client's case we can not change the rates of the last year as we have
other consolidation groups/scopes using the same currency that might then be
converted at the incoming entities spot rate. We have about 8 sub
consolidation groups that consolidate in Euro's. I have thought of a
lot of other options but none successful for the moment.

has anyone encountered this issue before? Any recommendations on how to solve this issue would be welcome.

Thanks.

[Former Member · Accepted solution]

Hi Marijn,

the use of specific rates for the opening balance is typically only relevant for certain accounts, mainly the equity accounts. On those accounts we always use the flow dimension to split the account into opening balance, additions, etc.

As the entity is new I would report their opening balances not on the flow for opening balances but on a specific flow for new entities. And I would set this flow to be entered both in local and group currency (formula [AS_IS] for the conversion).

That way you can enter the exact group currency amount for each account for the specific entity without any impact on any other entity that happens to have the same local currency.

And from a consolidation point of view, as the entity is new to the scope it should not contribute any opening balance values to the group anyway.

BR,

Arnold

[marijnbax2 · Accepted solution]

Hi Arnold,

Thanks again for your reply and helping me out. I have added a new flow (in my case F01) that converts at spot rate (manually maintained) and also a rule that posts the difference between [SPOT] rate and END rate to calculate the CTA flow.

Marijn