Assume that a different New Zealand company has a single overseas subsidiary operating in the USA. The financial statements of this subsidiary are translated using the functional currency method (around paragraph 23 of NZ IAS21). The income statement for the subsidiary shows a profit after tax of US$0 (zero) for the most recent financial year, during which the New Zealand dollar strengthened significantly against the US dollar.

Based on the fact that the subsidiary reports a zero profit, a junior accountant at the New Zealand company believes that no amount will be debited (or credited) to the Income Statement for foreign currency translation loss (or gain) for the most recent financial year.

Answer rating: 100% (QA)

In this case junior accountant argument is not correct because if any entity has foreign subsidiar... View the full answer