Translation/ Transaction differences
When translating a narrative into another language, it's common to see changes in the number of words, the time it takes, and even the meaning. This happens because each language has its own unique features, so these differences are unavoidable. Similarly, when a foreign branch’s financial statements are translated into local INR for consolidated reporting, there are certain translation rules to follow. Some items are translated at one rate, while others use different rates. Because of these varying rates, the translated financial statement may result in excessive debit/credit, but these differences won’t lead to any actual cash loss or gain.
On the other hand, when different rates are used due to actual transactions, there can be a real cash loss or gain. For example, if an item is recorded at a lower rate when bought and then paid for at a higher rate, there’s a loss. The opposite scenario would lead to a gain. This type of difference is treated differently from translation losses or gains. Translation differences don't result in cash gains or losses and are recorded in other comprehensive income, while differences due to transaction rates are recorded in the profit and loss account.
By CA L.Muralidharan and CPA L.Mukundan
Visit www.sreeramcoachingpoint.com for more blogs
Contact: 6383228202 or 9884439769
Also use our app Gyanji for more utility and benefits
Best place of coaching for CPA, CMA USA & CA
