Differences in gains and losses of foreign currency translation
If the point of view of local currency to be used (local companies viewpoint), the entry of the translation adjustment in current earnings do not need to be done. Enter translation gains and losses in earnings will distort the real financial relationships and can mislead the users of such information. Translation gains or losses should be treated from the standpoint of local currency as an adjustment to equity owners.
If the parent company’s reporting currency is the unit of measurement of the financial statements are translated (the parent company’s point of view), it is advisable to recognize gain or loss on translation of profit as soon as possible. Point of view of the parent company saw overseas subsidiaries as an extension of its parent company. Translation gains and losses reflect the increase or decrease in equity of foreign investment in domestic currency and should be recognized.
Advantages and disadvantages of foreign currency translation
Changes in the value of domestic currency equivalent of the net assets of foreign subsidiaries are not realized and no effect on the local currency cash flows generated from foreign entities. Translation adjustment should be accumulated separately as part of consolidated equity.
Suspension and Amortization
Suspension of translation gains or losses and to amortize it over the useful adjustment items related to the balance sheet, primarily related to debt ditangguha = kandan will be amortized over the related fixed assets, which is charged against earnings in the same way with the burden of depreciation or deferred and amortized during the remainder of the loan as an adjustment to interest expense.
Translation gains and losses is to recognize the losses as soon as possible after it happens, but admitted only after the profits realized, this is simply because it is an advantage, it ignores the changes in exchange rates.
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