Question

Answer the following questions and use GAAP cite appropriate justification for your answer.

4. Company A sold a foreign subsidiary during the current year. In Company A’s equity, there was a cumulative foreign translation adjustment related to the subsidiary. How will this cumulative foreign translation adjustment be accounted for in the sale?

Answer 1

The Cumulative Translation Adjustment (CTA) is a line item within an accounting statement that handles any gains or losses that have occurred because of exposure to foreign currency markets through normal business activities. The line item is clearly noted, separating the information from that of other gains or losses.

This is grouped along with reserves as a separate line item.

So on Sale of subsidiary CTA also will for part of Reserves and hence considered in Networth of the subsidary under consideration and will for part in calculating of profit/Loss on sale of subsidiary.