Steps for preparing final accounts-branches, Financial Accounting

Steps for preparing Final Accounts

The following steps should be followed in preparing the final accounts where we have a foreign branch.

1. Update the trial balance of the branch that is given in the foreign currency with the following items:

a) closing  inventory  DR   Balance sheet
                                              CR  profit and loss.

b) Accrued or prepaid expenses.     Accrual       :  DR.  profit and loss (expense)
                                                                                     CR    balance sheet (liability)

                                                          Prepayment :  DR.  Balance sheet (Asset)
                                                                                      CR   Profit and loss (expense, income)


c) Depreciation:    DR.  Profit and loss (expense)
                                         CR  Balance sheet (provision)


2. Translate the updated trial balance of the branch using the exchange rates given and depending on the method of translation.

Once the trial balance has been translated into the local currency, the debit side may not be the same as a credit side and balancing figure is the exchange gain or loss. If the debit side is more than the credit side, then difference is an exchange gain and if the credit side is more than the debit side then the difference is an exchange loss.

3. Prepare the final accounts of the branch in the normal way using the trial balance of the head. And the translated trial balance of the branch.

Care should be taken on the treatment of the exchange gain or loss. The following points should be applicable.

a) If the functional currency method is being used, then any exchange gain or loss will appear in the column  of the branch and the combined business in the profit and loss accounts. An exchange gain will appear as other incomes under gross profit and exchange loss and expense in the profit and loss account.

b) If the presentation method is being used, then the exchange gain or loss will be taken to a foreign  exchange reserve  which will appear as part of capital and reserves in the balance sheet of the branch and the combined business or added to the head office current account.

Posted Date: 12/12/2012 2:06:15 AM | Location : United States







Related Discussions:- Steps for preparing final accounts-branches, Assignment Help, Ask Question on Steps for preparing final accounts-branches, Get Answer, Expert's Help, Steps for preparing final accounts-branches Discussions

Write discussion on Steps for preparing final accounts-branches
Your posts are moderated
Related Questions
calculate the ratios of the company called ''Apple''


Please use the information below to complete Form 1120S and the Schedule K-1%u2019s for Form 1120S. Blank forms can be found on the Hands-On Assignment page or in Doc Sharing. If y

Simon Corporation's bonds have 12 years left over to maturity. Interest is paid yearly, the bonds have a $1,000 par value, and the coupon interest rate is 11.5%. The bonds have a y

Current analysis You will need about $150,000 in start-up costs but you can only borrow half of that amount from your family's home equity (at 13% interest). You will have to b

WACC and gearing There are two major theories linking a company's WACC and its gearing ratio. (i) The usual theory of gearing proposes a "U" shaped WACC curve. Cost of c

Asch Experiments In these basics studies by Solomon Asch, groups of seven or 8 people were put in a classroom and shown two cards by the experimenter. The first card had a mai

MUTUAL DEALINGS A right of set-off is allowed where there have been - (a) Mutual credits, debts or other dealings resulting in pecuniary liabilities, (b) Between the debtor an

Brabham Enterprises manufactures tires for the Formula One motor racing circuit. For August 2011, Brabham budgeted to manufacture and sell 3,000 tires at a variable cost of $74

From the information provided, determine: 1.) The amount of retained earnings at December 31 and 2.) The amount of revenues for the period. Additional data: 1.)Expenses