Realised Forex gain on sale of Investments within the group

Realised Forex gain on sale of Investments within the group

Company A (Indian Company) made investment in E ( Oversea) during FY 2015-16.
The investment made is 10,000 EURO at Exchange rate of 50 (ie: Rs 5,00,000).
During the FY 2018-19 Company A sold the Investment in Company E to its wholly owned subsidiary Company U ( Overseas) in USD.

The sale value is 11,000 EURO at exchange rate of 80 (ie:Rs 8,80,000).

The profit on sale of Investment is Rs 80,000 in Company A Books during FY 2018-19 (ie:1000 EUR * 80).

The realised forex gain on sale of investment ( Company A to Company U) is Rs 3,00,000 (10,000*30) being difference in exchange rate [ 80-50]

Based on above is it appropriate to disclose/account as below in Standalone and Consolidated Financials.
Option 1
a) Profit on sale of Investment Rs 3,80,000

Option 2
b) Profit on sale of investment Rs 80,000
c) Realised forex gain on sale of investment Rs 3,00,000

Whether realised forex gain of Rs 3,00,000 to be eliminated at consol or not ? if to be eliminated what is the accounting entry for the same? if not to be eliminated what is the disclosure for realised forex gain in consolidated financial statement ?

Company A follows Indian Accounting Standards as its financial reporting framework.

Asked 5 years ago in Audit

Technically since you were having foreign investment and since this investment are monetary item as per IndAS 21 the value of monetary items needs to be updated to the closing rate at end of every financial year and therefore you should have recorded the foreign exchange gain every year.

However since you have not done that it can create some problem.

Ignoring that i guess 300000 should be foreign exchange income as it would have been recorded every year and 80000 would be profit on sale of investment for book profit purpose.

I dont think this transaction will affect consolidation as the gain has been realised in monetary terms and it is not any unrealised profit as in case of stock transfer etc.

Hope you find the information helpful if you do please rate it 5 and provide your valuable feedback for my improvement.

Thank you.

Naman Maloo

CA, Jaipur

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- Option 1 is correct.

- Intra-group transactions between company A and U should be eliminated at the time of consolidation.

Vivek Kumar Arora

CA, Delhi

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Hello,

As per Ind AS 21: The effect of changes in foreign exchange rates, at the end of each reporting period Foreign currency monetary items should be translated using the closing rate at the end of the reporting period. This way option-2 would be appropriate.

I hope this answer satisfies your requirement.

Regards,

CA Hunny Badlani