Foreign Currency Translation Reserve

A company with a branch, subsidiary or associate that keeps its books in another currency must convert those books into rupees to consolidate them. Assets and liabilities are translated at the closing rate, income and expenses at the average rate, and the difference that arises because the rates differ is parked in this reserve rather than in profit. It swings each year with the rupee and is released to profit only when the foreign operation is sold. Ordinary exchange differences on a USD invoice or a hotel bill are not translation differences; they go to Foreign Exchange Gain or Foreign Exchange Loss. Only a group with a foreign operation needs this account, posted once a year from the consolidation working.

Translation difference = Net assets at closing rate - (Opening net assets at opening rate + Profit at average rate)

1. 01Prepare the consolidation worksheet with closing, average and opening exchange rates from Nepal Rastra Bank.
2. 02Compute the translation difference on the foreign operation's net assets.
3. 03Go to Invoicing > Journal Entry > New dated the year end.
4. 04Post the difference between the investment or net asset ledger and Foreign Currency Translation Reserve.
5. 05Submit. The entry below posts.
6. 06On disposal of the operation, transfer the accumulated reserve to profit by Journal Entry.

Post by Journal Entry at year end when consolidating a foreign office. Not needed for ordinary dollar invoices; those use Foreign Exchange Gain or Loss.

Dr Foreign Currency Translation Reserve Rs 45,000, Cr Investments in Associates and Joint Ventures Rs 45,000 on translating an Indian branch.