What is Cumulative translation adjustment?
In short
The cumulative translation adjustment is the accumulated amount, in other comprehensive income, that results from translating a foreign subsidiary's statements from its functional currency into the parent's reporting currency.
Key takeaways
- It arises because assets and liabilities are translated at the current rate, income at average rates and equity at historical rates.
- It is reclassified into net income when the foreign operation is sold or substantially liquidated.
- Remeasurement gains and losses, by contrast, go straight to net income.
Where it's tested
BAR: Foreign Currency Translation — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
Under the current rate method, which item in a foreign subsidiary's statements is translated at the historical exchange rate?