Intercompany A lends USD 1,000 to Intercompany B. Intercompany A’s functional currency is in USD while Intercompany B’s in SGD. The money remitted by Intercompany A is in USD and the money received by Intercompany B is in SGD. Intercompany B recorded SGD 1,400 at 1.4 FX rate. At month end, the books of Intercompany B is translated to USD using 1.3 FX closing rate. The converted payable is USD 1,076. How will the intercompany variance of USD 76 going to be presented in the consolidated FS?
Intercompany Elimination/Variance due to FX
Answers
If I interpreted this correctly, since “A” loaned the money, they have no FX issue (let’s assume this is a one-off trx).
You are correct that the received money is recorded per the bank. No FX is computed yet.
At month end you do an inter-company reconciliation. For Assets and Liabilities, FX is computed based on the exchange rate as of date.
Functional Cur USD
Date Description
Comp A -USD FX xchg Rate Comp B - SDG
1-Jan Loan $1,000.00 1.4 1,400.00 ₼
31-Jan TOTALS $1,000.00 1.3 1,300.00 ₼
FX Adjustment -100.00 ₼
The accounting tx on Comp B is
DB CR
Intercompany 100.00 ₼
Fx Gain/(Loss) Expense 100.00 ₼
My apologies, no way of making this prettier...
1
In short, recognize gain or loss necessary to pay the $1,000 loan from the subsidiary’s currency.