ISP has a wholly owned subsidiary in China. This subsidiary is self-sufficient and does not rely on ISP for financing and sales. How should foreign exchange gains on translation of the subsidiary's statements to Canadian dollars be reported on ISP's consolidated financial statements?
A)Gains should be reported under shareholders' equity.
B)Gains should be reported on the statement of financial position as deferred credits and amortized in a systematic and rational manner.
C)Gains from current net assets should be credited to income, and any gains from long-term nonmonetary assets should be deferred and amortized.
D)Gains from current monetary assets should be credited to income and any gains from long-term monetary assets should be deferred and amortized.

Question

Quizplus · Accepted Answer

Foreign exchange gains on translation of a subsidiary's financial statements are reported in other comprehensive income (OCI) and accumulated in a separate component of equity, often referred to as the cumulative translation adjustment (CTA) within shareholders' equity, according to International Financial Reporting Standards (IFRS) and generally accepted accounting principles (GAAP) in many jurisdictions. This approach reflects the fact that such gains or losses are not realized until the subsidiary is sold or liquidated.

ISP Has a Wholly Owned Subsidiary in China