Statement of Shareholders' Equity

[maniac]

Hi,

I am not an expert, but this is my understanding:

Local currency – currency of the country where the company/subsidiary operates in
Functional currency – identified by the company, usually the currency which the company generates or uses cash (in this case US$)
Presentation currency – reporting currency in the financial statement (in this case RM)

Functional currency needs to convert to presentation currency if they are different, using “current” translation (include an exchange translation in the statement of equity)

Local currency needs to convert to functional currency if they are different, using “temporal” translation (include a foreign currency translation in the income statement)

For current translation
- The items in the income statement and balance sheet needs to be translated to presentation currency based on some rules using the various exchange rates ( e.g current exchange rate, average exchange rate for the year etc.)
- To make the asset = liability + equity balance, the exchange translation is adjusted to balance the equation.

For temporal translation
- The items in the balance sheet are translated to the functional currency based on some rules using the various exchange rates.
- From the adjusted retained earning, due to the currency adjustment, a foreign currency translation gain/loss will be reflected in the income statement.

Exchange translation needs to be included when looking at Equity.

[sbanpjman8]

Thx donmihaihai and maniac.

After reading those explanation, does it mean that,
1) fx gain/loss on net profit (for all completed transaction) for current FY will be recognised immediately and would not affect subsequent yr Equity value.
2) Investment items such as asset/bond/stock, their FX will be reflected in Equity statement to balance the A=L+E. since they are not transacted and recognised, so their value will affect the Equity side of value each and every subsequent year until it was a done deal.
3) so if my rational of buying a company with oversea operation base on its book value, I should hav to discount on its assets side of value BUT not the retained earning since the earning already considered the FX every financial year.

Thx again.