What are the accounting rules for translation exposureSoluti

What are the accounting rules for translation exposure?

Solution

Translation exposure refers to the risk of in curing losses due to changes in the foreign exchange rates on business transactions. Such losses can also apply on balance sheet Holdings. The accounting standards required translation while preparing consolidated financial statements. Translation exposure is commonly seen when a company has subsidiaries in other countries and when it has substantial foreign dealings.

The accounting rules for translation exposure are as follows.

If the exposed assets are greater than the exposed liabilities and foreign currency devalues translation loss should be recorded. Conversely if the foreign exchange Re values there would be a translation gain.

If the exposed liabilities are greater than the exposed Assets and the foreign currency devalued translation gain should be recorded. If the foreign currency revalues in this situation translation loss should be recorded.