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The document outlines the financial statements of an Egyptian subsidiary for the year ended 31/12/2025, including a Statement of Financial Position and an Income Statement, both translated into Euro using various exchange rates. It details the translation process, resulting in a translation loss of €11,845, which is recognized in the income statement, leading to an adjusted net loss of €1,455. Additionally, it compares the Current / Non-Current Method with the Temporal Method for classifying financial items.

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3 views4 pages

Translation

The document outlines the financial statements of an Egyptian subsidiary for the year ended 31/12/2025, including a Statement of Financial Position and an Income Statement, both translated into Euro using various exchange rates. It details the translation process, resulting in a translation loss of €11,845, which is recognized in the income statement, leading to an adjusted net loss of €1,455. Additionally, it compares the Current / Non-Current Method with the Temporal Method for classifying financial items.

Uploaded by

malak.md2809
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

A European parent company prepares its financial statements in Euro (€).

It has a
subsidiary operating in Egypt, The following financial statements relate to the
Egyptian subsidiary for the year ended 31/12/2025:

(A) Statement of Financial Position (in EGP):

Item (EGP)
Cash 480,000
Accounts Receivable 720,000
Inventory 1,200,000
Fixed Assets 2,000,000
Accounts Payable 600,000
Long-term Loan 1,200,000
Share Capital 1,800,000
Retained Earnings 800,000

(B) Income Statement (in EGP):

Item (EGP)
Sales Revenue 4,800,000
Cost of Goods Sold 3,000,000
Depreciation Expense 400,000
Operating Expenses 600,000

Exchange Rates :
 Current Rate (31/12/2025): 1 € = 55 EGP
 Historical Rate: 1 € = 35 EGP
 Average Rate: 1 € = 50 EGP

1
Required: Current / Non-Current Method

1. Translate the Statement of Financial Position into Euro


2. Translate the Income Statement into Euro
3. Determine the Translation Gain or Loss

Step (1): Statement of Financial Position Translation


Current Assets (Current Rate = 55)
 Cash = 480,000 ÷ 55 = 8,727
 Accounts Receivable = 720,000 ÷ 55 = 13,091
 Inventory = 1,200,000 ÷ 55 = 21,818

�Total Current Assets = 43,636 €

Non-Current Assets (Historical Rate = 35)


 Fixed Assets = 2,000,000 ÷ 35 = 57,143

�Total Assets = 100,779 €

Liabilities
 Accounts Payable (Current) = 600,000 ÷ 55 = 10,909
 Long-term Loan (Non-current) = 1,200,000 ÷ 35 = 34,286

�Total Liabilities = 45,195 €

Equity
 Share Capital = 1,800,000 ÷ 35 = 51,429
 Retained Earnings = 800,000 ÷ 50 = 16,000

�Total Equity = 67,429 €

2
Translation Difference
Total Assets = 100,779
Total Liabilities + Equity = 45,195 + 67,429 = 112,624

�Translation Difference = (11,845 €) = Translation Loss

Step (2): Income Statement Translation


Revenue (Current Rate)
= 4,800,000 ÷ 55 = 87,273

Cost of Goods Sold (Current)


= 3,000,000 ÷ 55 = 54,545

Depreciation (Historical Rate)


= 400,000 ÷ 35 = 11,429

Operating Expenses (Current)


= 600,000 ÷ 55 = 10,909

Net Income
= 87,273 − (54,545 + 11,429 + 10,909)
= 10,390 €

🔹 Step (3): Treatment of Translation


Difference
3
Under the Current / Non-Current Method:

 Translation Loss = 11,845 €


 Recognized in the Income Statement

🔹 Step (4): Final Adjusted Result


 Adjusted Net Income = 10,390 − 11,845
= (1,455 €) Net Loss

Comparative Table
Current / Non-Current vs Temporal Method
Aspect Current / Non-Current Temporal Method
Method
Basis of Based on liquidity (current Based on nature (monetary vs
Classification vs non-current) non-monetary)
Cash & Current rate Current rate
Receivables
Inventory Current rate Historical rate
Fixed Assets Historical rate Historical rate
Accounts Payable Current rate Current rate
Long-term Historical rate Current rate
Liabilities
Equity (Share Historical rate Historical rate
Capital)
Cost of Goods Current rate Historical rate
Sold
Depreciation Historical rate Historical rate
Expense
Operating Current rate Current rate
Expenses
Translation Recognized in Income Recognized in Income
Gain/Loss Statement Statement

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