TABLE OF CONTENTS

Description

A Cumulative translation adjustment (CTA) summarizes the gains and losses resulting from varying exchange rates over time. Please review the CTA Article, this will inform this example. In this article, we walk through a concrete example of how this works for an example business.


Example

System Setup

Locations/Entities

Create Two locations/entities

  1. Global operating in USD
  2. SGD operating in SGD, subsidiary of Global


Accounting Periods

Assume the business operates their fiscal year same as calendar year.


Accounts Setup

In this example, we'll book a single journal entry at the SGD location to show how this affects the consolidated balance sheet.


Here are the accounts used 

Number
Name
Type
110000
Cash
Asset
410000
Revenue
Revenue
310000
Retained Earnings
Equity
340000
Other Comprehensive Income
Equity
340001
Accumulated Other Comprehensive Income
Equity


System Account Default Settings

Set default accounts in SoftLedger as Follows.

Navigate to Settings ➝ Accounts


Balance Sheet updates

In this example we'll update our balance sheet as noted above.


Booking a Sample entry

NOTE: Ensure to post the journal entry


Closing the year

Navigate to Admin ➝ Acc. Periods and close out 2021 FY


This will book the Retained earnings entry and CTA entry as well


Viewing the unconsolidated balance sheet

Looks as expected, SGD$100,000 in total assets, and the balancing amount in retained earnings. 


Viewing the consolidated balance sheet

At first glance, we see SGD and Global individual locations do not balance, however the consolidated Balance does.


Understanding the Results

  • First see our total Assets are USD $73,212.90. 
    • This is taking our SGD$100,000 and converting to USD using the rate(0.732129) from the transaction date of the journal entry (12/15/21). 
  • Next we see our Retained earnings(USD$74,148.20) does not offset our Assets here as it did when looking at the unconsolidated balance sheet.
    • This is taking our SGD$(100,000) retained earnings entry and converting to USD using the rate(0.741482) from the transaction date of the retained earnings journal entry (1/1/22).
  • This results in a balance of USD$(935.30) due to the difference in SGD ➝ USD exchange rate from 12/15/21 and 1/1/22.

- - - - 

  • In order to fix this imbalance at the consolidated level, we need to book a Cumulative Translation Adjustment at the Parent Location/Entity(Global).
    • SoftLedger handles this automatically, as can be seen in the Balance Sheet above. There is a USD$935.30 amount booked to Accumulated Other Comprehensive Income at the Global Location. (Other side booked to Other Comprehensive Income, which is not present on the balance sheet)
    • This offsets the value booked at SGD Location and results in a balanced consolidated amount.