Group Cash Flow: Exchange gains/(losses) on cash and cash equivalents

[mickax]

Hi All,

At the bottom of the group cash flow, there is this line between opening and closing cash & cash equivalents for the year:

Group Cash Flow: Exchange gains/(losses) on cash and cash equivalents

Could I ask how it is calculated?

Thank you!

 

[Fidget]

It's where a parent company has overseas subsidiaries that use a foreign currency. Depending on the exchange rates, there will be a gain or loss on translation of foreign currency transactions used by the subsidiaries, into the presentation currency that the parent has to use to draw up the group accounts, so it's the effect of that.

 

[mickax]

Hi Fidget,

Thank you very much. Could I ask what would be the steps or an example to get this amount?

For e.g. in a group cash flow:

Group net income
Group Cash from Operations
Net Cash generated from Operations
(for e.g. increase in inventories = Opening + inventories from subsidiary - closing)

Group Cash from Investing
Net Cash generated from Investing
(for e.g. acquisition of subsidiary)

Group Cash from Financing
Net Cash generated from Financing
(for e.g. Repayment of long-term loans)

Net Increase/decrease in cash & cash equivalents 500
Opening Cash 35,000
Exchange gains/(losses) on cash and cash equivalents 100
Closing Cash 35,600

The Opening Cash is brought forward from previous years.
Would not the net increase/decrease in cash & cash equivalents (which is the sum of the Ops, Investing, Financing) include the Exchange gains/(losses) on cash and cash equivalents in itself?

For example, in the Operations, the inventories would already be translated as well as all the other subsidiary items summed up together. Why would there still be a separate Exchange gains/(losses) on cash and cash equivalents?

 

[Fidget]

oh I see what you mean. I didn't read your original post properly. The purpose of that is to reconcile the opening and closing balances of cash & cash equivalents.

With consolidated accounts and foreign currency, there'll be translations at the balance sheet date, but the consolidated cash flow requires cash and cash equivalents to be translated at the rate on the date that the cash flow is drawn up, so it should be the difference between them.

 

[mickax]

Thanks Fidget, would this simple illustration be correct?

Group cash flow
Conso net income (subsidiary: average rate)
Depreciation (subsidiary: current year closing rate )

Etc etc etc
Net increase/decrease in cash and equivalents

Opening cash (parent + subsidiary: last year closing rate)
Ending cash (parent + subsidiary: current year closing rate)

Opening & closing cash difference (from consolidated balance sheet) is compared against net increase/decrease in cash and equivalents (from consolidated cash flow)
= exchange gains/losses on cash and equivalents

 

[Fidget]

The layout for that part is:

* Net increase/decrease in cash and cash equivalents

* Balance at beginning/Opening balance
* Effects of currency translation on cash and cash equivalents
* Balance at end/closing balance