Not sure if this matters, but does one know if the section on Multinational operations (and thus translating foreign operations to parents’) depend on what kind of intercorporate investment the foreign operation is ?
It’s not entirely clear if there is a distinction, just refers to foreign opertions/subsidiaries/affiliates. Does this mean that the 2 translation methods apply only to when the Subsidiary is classified as an Investment in an Associate, or could it be from a business combination also?
Tyring to link the readings together in my mind, maybe unnecessarily.
This came up yesterday. The CFAI readings talk about use the 2 methods when consolidating subsidiaries. That to me would mean that it would not apply to equity method.
I guess in the real world we would have to consider both the type of intercorporate investment along with the translation method.
For the exam, I think we can assume that the foreign subsidiary will always be one over which the parent has control which is why every item on the balance sheet and income statement of the subsidiary is translated before being proportionately consolidated line by line on the parent company’s financial statements (if I remember correctly).
So does that imply that the initial intercorporate investment was a business combination?
Side question. Does “subsidiary” or “affiliate” refer to one type of intercorporate investment as opposed to another?
the reading talks about a subsidiary. I think for investments which are measured at fair value the current rate would be used and for held to maturity the coupon payment would also be measured at current rate. And in reading 22 its mentioned that foreign currency gains and losses of AFS are recorded in income statement under IFRS while other unrealized gains and losses regarding AFS are measured directly in equity. Can’t exactly say about the treatment for suchi nvestments but the reading does talk about subsidiary acting in a foreign country.