When translating the financial statements of a foreign operation to presentation currency,AASB 121 requires any gain or loss on translation of the accounts to be:
A) recognised as a revenue or expense in the statement of comprehensive income.
B) transferred to a reserve in the equity section of the statement of financial position.
C) deferred and amortised over a period not greater than 20 years.
D) written off against the non-monetary assets of the foreign operation with any balance remaining recognised as a revenue or expense in the period.

Question

Quizplus · Accepted Answer

AASB 121 requires any gain or loss on translation of the accounts to be transferred to a reserve in the equity section of the statement of financial position. This reserve is called the "cumulative translation adjustment" and is shown separately from retained earnings. This treatment recognizes that the gain or loss on translation is not a revenue or expense item, but rather a result of changes in exchange rates. By transferring it to a reserve, the impact of these changes on equity is highlighted separately from the underlying performance of the foreign operation.

When Translating the Financial Statements of a Foreign Operation to Presentation