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How do we re-measure long term Intercompany accounts and long term loans?

They should go to other comprehensive income (PL) account. Right? our funcational currency is USD . Thanks for any guidance.

Answers

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

I'm sorry, "re-measure"? I don't understand what you wish to do.

if it's FX translations, since it's probably cash, then the exchange rate on the date.

Look at FAS 52 CAS 380 I believe

Anonymous
(Sr. International Accountant) |

Since our functional currency is USD, we need to re-measure the local currency book based on the temp method . Monetary and non monetary accounts have different treatments. How do we re-measure long term Intercompany accounts and long term loans?

Topic Expert
Jake Feldman
Title: Managing Director
Company: Global TaxFin Advisory Group LLC
(Managing Director, Global TaxFin Advisory Group LLC) |

In my understanding, the short answer is, for a dollar functional subsidiary, there is no OCI currency translation account. All translation g/l flows through the income statement, not balance sheet. Most companies have subs that are local currency functional, so a dollar functional sub tends to be a rare situation that people are not as familiar with.

Translation accounting has always been a confusing subject with part of the blame attributable to poorly explained terminology in FAS 52, in my opinion. For example, people confuse current method with current rate method because the names are so similar.

More specifically for intercompany accounts:

a) If an intercompany loan is considered short term, exchange gains or losses are recognized in the income statement, under all functional currency situations.

b) If the i/c loan is long-term, the exchange gain/loss would be included in the equity section under the current method or the income statement if temporal method is used.

It's the part b rule that confuses everyone. Since your sub is dollar functional, you must use the temporal method which means all re-measurement (translation) gains or losses go directly to the income statement.

So the end result is for a dollar functional sub, g/l on all i/c accounts go to income statement along with all other g/l on all other accounts.

Carrie Huang
Title: Sr. International Accountant
Company: Navis
(Sr. International Accountant, Navis) |

Thanks, Jake. I agreed with you . Since we used Temporal method, the re-measured gain or loss for the long term IC accounts and long terms loan should go to the PL account. My direct boss did not agree with me, She said the unrealized gain/loss should directly go to the equity account ( CTA account) . This is the only exception for the Temp method re-measurement. One of my co-workers said the long term accounts are not monetary and we do not need to re-measure them at all. I am very confusing. Thanks!

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