How is the CTA reclassified when a foreign operation is abandoned rather than sold?

ttributable to NCI is derecognised, but it is not reclassified to profit or loss (IAS 21.48B). Only the parent's share is recycled. - Partial disposals — subsidiaries vs. other foreign operations. The treatment differs depending on the structure. On a partial disposal of a subsidiary that includes a foreign operation, the proportionate CTA is re-attributed to NCI, not recycled to profit or loss (IAS 21.48C). In any other partial disposal of a foreign operation — for example, an associate or joint venture — only the proportionate share of the CTA is reclassified to profit or loss. - What counts as a disposal. Disposal can occur through sale, liquidation, repayment of share capital, or abandonment of all or part of the interest. Each of these triggers reclassification; a mere impairment does not (IAS 21.49). - Goodwill and fair value adjustments. Any goodwill arising on acquisition of a foreign operation and related fair value adjustments are treated as assets and liabilities of the foreign operation, expressed in its functional currency and translated at the

Does disposal of a foreign operation trigger recycling of OCI from cash flow hedges related to that operation?

closing rate (IAS 21.47). This means they too feed into the CTA balance that will ultimately be recycled. --- Key paragraphs to know - IAS 21.41 — Explains the two sources of exchange differences that accumulate in OCI: translating income/expenses at transaction-date rates versus translating assets/liabilities at closing rates. - IAS 21.47 — Requires goodwill and acquisition-date fair value adjustments to be treated as assets and liabilities of the foreign operation and translated at the closing rate. - IAS 21.48 — Core recycling rule: cumulative CTA is reclassified from equity to profit or loss when the disposal gain or loss is recognised. - IAS 21.48B — CTA attributed to NCI on disposal of a subsidiary is derecognised but never recycled to profit or loss. - IAS 21.48C — Partial disposal of a subsidiary: proportionate CTA is re-attributed to NCI; partial disposal of any other foreign operation: proportionate CTA is recycled. - IAS 21.49 — Defines what constitutes a disposal and confirms that impairment write-downs do not trigger reclassification of the CT

IAS 21 Disposal of a Foreign Operation

Q: What happens to the cumulative translation adjustment when a foreign operation is disposed of under IAS 21?

Core rule When you dispose of a foreign operation, the cumulative translation adjustment (CTA) sitting in equity does not simply disappear — it is recycled into profit or loss. All exchange differences relating to that foreign operation, recognised in other comprehensive income (OCI) and accumulated in a 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 (IAS 21.48). This recycling ensures the total economic gain or loss on the disposal — including the currency component — is fully reflected in the income statement. --- How it works The CTA builds up over the life of a foreign operation because assets and liabilities are translated at closing rates while income and expenses are translated at transaction-date rates (IAS 21.41). By the date of disposal, the CTA may be a significant positive or negative balance. Steps at disposal: - Determine the full carrying amount of the foreign operation being derecognised. - Identify the cumulative CTA balance a

IAS 21 Disposal of a Foreign Operation — Core Rule

When you dispose of a foreign operation, the cumulative translation adjustment (CTA) sitting in equity does not simply disappear — it is recycled into profit or loss. All exchange differences relating to that foreign operation, recognised in other comprehensive income (OCI) and accumulated in a 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 (IAS 21.48). This recycling ensures the total economic gain or loss on the disposal — including the currency component — is fully reflected in the income statement.

How IAS 21 Disposal of a Foreign Operation Works

The CTA builds up over the life of a foreign operation because assets and liabilities are translated at closing rates while income and expenses are translated at transaction-date rates (IAS 21.41). By the date of disposal, the CTA may be a significant positive or negative balance.

Steps at disposal

Determine the full carrying amount of the foreign operation being derecognised.
Identify the cumulative CTA balance attributable to that operation in the separate equity component.
Reclassify that entire CTA balance to profit or loss in the period the disposal gain or loss is recognised.
Include the reclassified CTA within the total gain or loss on disposal presented in the income statement.

Practical journal entry (simplified)

Assume a cumulative CTA of CU 120 (credit balance — favourable) at the date of disposal:

Dr  Translation reserve (OCI component)     120
    Cr  Gain on disposal – profit or loss        120

The CU 120 is now part of the reported disposal gain, alongside any proceeds less carrying amount.

IAS 21 Disposal of a Foreign Operation — Common Pitfalls

Write-downs are not disposals. A write-down of a foreign operation's carrying amount due to its own losses or an impairment charge does not constitute a partial disposal. Accordingly, no part of the CTA is reclassified to profit or loss at the time of a write-down (IAS 21.49).

Non-controlling interests (NCI) on full disposal of a subsidiary. When you dispose of a subsidiary that includes a foreign operation, the cumulative CTA attributable to NCI is derecognised, but it is not reclassified to profit or loss (IAS 21.48B). Only the parent's share is recycled.

Partial disposals — subsidiaries vs. other foreign operations. The treatment differs depending on the structure. On a partial disposal of a subsidiary that includes a foreign operation, the proportionate CTA is re-attributed to NCI, not recycled to profit or loss (IAS 21.48C). In any other partial disposal of a foreign operation — for example, an associate or joint venture — only the proportionate share of the CTA is reclassified to profit or loss.

What counts as a disposal. Disposal can occur through sale, liquidation, repayment of share capital, or abandonment of all or part of the interest. Each of these triggers reclassification; a mere impairment does not (IAS 21.49).

Goodwill and fair value adjustments. Any goodwill arising on acquisition of a foreign operation and related fair value adjustments are treated as assets and liabilities of the foreign operation, expressed in its functional currency and translated at the closing rate (IAS 21.47). This means they too feed into the CTA balance that will ultimately be recycled.

IAS 21 Disposal of a Foreign Operation — Key Paragraphs

IAS 21.41 — Explains the two sources of exchange differences that accumulate in OCI: translating income/expenses at transaction-date rates versus translating assets/liabilities at closing rates.
IAS 21.47 — Requires goodwill and acquisition-date fair value adjustments to be treated as assets and liabilities of the foreign operation and translated at the closing rate.
IAS 21.48 — Core recycling rule: cumulative CTA is reclassified from equity to profit or loss when the disposal gain or loss is recognised.
IAS 21.48B — CTA attributed to NCI on disposal of a subsidiary is derecognised but never recycled to profit or loss.
IAS 21.48C — Partial disposal of a subsidiary: proportionate CTA is re-attributed to NCI; partial disposal of any other foreign operation: proportionate CTA is recycled.
IAS 21.49 — Defines what constitutes a disposal and confirms that impairment write-downs do not trigger reclassification of the CTA.