I have a question regarding Fx gain/(loss) on hedges placed for US Company funding Mexican Sub (Maquilodora) in Peso.
It appears Peso is received in at contract rate to Mexico but charge back to US for monthly maquiladora mark-up is at spot (based on Bank of Mexico daily rate). I am not sure what entry is being made each month to agree Mexico Interco AR AP to US Interco AR AP (when Mexico is being translated at spot), but am guessing offset is to CTA, whether directly or inadvertently. I did see entries in GL where an entry is being made for FASB 52 Calc (now ASC 830), wherein there is entry between CTA and Interco AR AP. I thought this might be true-up entry between two, but I see offset entry in US – wash between two would be nil
As the net Interco Rec’bl is never settled by the US with a payment to Mexico, nor do I think one is ever planned, it is probably most accurate to reflect the FX gains/losses over time as CTA (which I think is where they are ending up) as these are probably more accurately considered net investment gains/losses (similar to parent company investment) than as realized gains/losses based on current transactions.
Can anyone make a good argument for recording the realized fx gains/losses on P&L or support my reasoning for CTA (posting within equity on the balance sheet)???