Ind AS 21 "The Effects of Changes in Foreign Exchange Rates" P Ltd., incorporated in India owns 70% interest in foreign entity, S Ltd. P Ltd. has…

As per paragraphs 48 and 48B of Ind AS 21, on the disposal of a foreign operation, the cumulative amount of the exchange differences relating to that foreign operation, recognised in other comprehensive income and accumulated in the separate component of equity, shall be reclassified from equity to profit or loss (as a reclassification adjustment) when the gain or loss on disposal is recognised (see Ind AS 1, Presentation of Financial Statements). Further, the standard states that on disposal of a subsidiary that includes a foreign operation, the cumulative amount of the exchange differences relating to that foreign operation that have been attributed to the non-controlling interests shall be derecognised, but shall not be reclassified to profit or loss. Where the subsidiary is partially owned (that is, where a non-controlling interest exists) and the parent has sold its entire interest, the amount of the CTA that has been allocated to the non-controlling interest is derecognised, but it is not transferred to profit or loss. Derecognition of the non-controlling interest (that includes the non-controlling interest's share of CTA) will form part of the journal entry to recognise the gain or loss on disposal of the subsidiary. In P Ltd.'s consolidated financial statements, the following amounts (in thousand) have been recognised in relation to its investment in S Ltd.: net assets of 4,000 and associated non-controlling interests of 1,200;foreign exchange gains of 900were recognised in other comprehensive income, of which 270was attributable to non-controlling interests and is therefore included in the - 1,200 non-controlling interests; 630 of foreign exchange gains have been accumulated in a separate component of equity relating to P Ltd.'s 70% share in S Ltd. P Ltd. sells its 70% interest in S Ltd. for 3,200 and records the following amounts: Dr. Cash/Bank A/c Dr. 3,200 NCI Dr. 1,200 Foreign Currency Translation Reserve (OCI) Dr. 630 To Net assets 4,000 To Profit on disposal 1,030 {630+(3,200-2,800)} It can be seen that 630of the foreign currency gains previously recognised in OCI, i.e. the amount attributed to P Ltd. is reclassified to profit or loss (profit on disposal) and adjusted from OCI. However,270 of such gains attributed to the non-controlling interests is not reclassified to profit or loss and is derecognised as a part of the NCI balance.