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cumulative translation adjustment (CTA) as double entry

Felipe Agustoni's Profile

After consolidating the balance sheet of a multinational operations company, the different exchange rates applied for translating to the presentation currency (Current rate method) in the different parts of the balance sheet, generates an imbalance in the fundamental accounting equation. Currenctly, this imbalance is being reflected as a cumulative translation adjustment (CTA) PLUG in the OCI. Is it possible to generate a double entry transaction to calculate the CTA instead of loading it as a PLUG? Is it possible to calculate this CTA instead of loading it as a plug resulting from the imbalance?

Answers

Nick Sinigaglia
Title: SVP
Company: OnDeck
(SVP, OnDeck) |

In essence, you ARE making a double entry (you have to be or you BS won't balance). Think about the absolute simplest case. You put 1,000 into a foreign currency entity when the exchange rate is 1:1. So in your Foreign Currency entity, you have 1,000 cash and 1,000 equity. If you translated to your reporting currency at that very instant, it would also be 1,000 cash and 1,000 equity. A month later, the rate is now 2:1, so when you translate the cash, you now have 2,000 in your reporting currency (spot rate), but 1,000 equity (historical rate). You "plug" the 1,000 to CTA, but in fact, you already made one side of the entry by increasing your cash balance from 1,000 to 2,000. A good FAS 52 model (sorry, I still use the old references) will track your CTA by each asset/liability so you can release the CTA as necessary.

Gerard Brinkman
Title: Owner
Company: Gerard J. Brinkman CPA
(Owner, Gerard J. Brinkman CPA) |

Old references? Don't you still use the APBs (Accounting Principles Board opinions) hee hee

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