When a parent company reports a foreign subsidiary, balances must be translated from the subsidiary's currency into the group's functional currency. IAS 21 requires different exchange rates for monetary items, non-monetary items, and income statement amounts. This calculator models the translation mechanics for planning and controller review — not full consolidation compliance.
How to use this calculator
- Enter the functional currency (e.g., USD) and the foreign subsidiary currency (e.g., EUR).
- Input monetary assets and liabilities denominated in foreign currency — cash, receivables, and payables remeasure at the period-end closing rate.
- Enter non-monetary balances (inventory, PP&E) that remain at historical rates.
- Enter net income for the period and the average exchange rate used for P&L translation.
- Provide historical, closing, and average rates (foreign currency units per one unit of functional currency).
- Review the translation difference and net functional-currency position.
Formula
Net monetary position = Monetary assets − Monetary liabilities. Monetary items translate at the closing rate for the balance sheet and produce a translation difference versus the prior historical-rate carrying amount. Non-monetary items translate at the historical rate when initially recognized. Income statement items (net income) translate at the average rate for the period. The translation difference on monetary items flows to other comprehensive income (OCI) under the current rate method.
Example
A subsidiary with €180,000 net monetary assets, €150,000 non-monetary items, and €45,000 net income translates at closing rate 0.95, historical 0.92, and average 0.93. Monetary remeasurement at closing versus historical produces a translation difference; non-monetary stays at historical; income uses the average rate.
Frequently asked questions
What is the difference between functional and presentation currency?
Functional currency is the primary economic environment in which an entity operates. Presentation currency is what appears on the financial statements. This calculator translates from a foreign currency into your stated functional currency.
Which items are monetary under IAS 21?
Monetary items are units of currency held and assets/liabilities to be received or paid in a fixed or determinable number of currency units — cash, receivables, and most payables. Inventory and fixed assets are typically non-monetary.
Where does the translation difference go?
Under the current rate method (IAS 21), exchange differences on monetary items and the cumulative translation adjustment on foreign operations are generally recognized in other comprehensive income until disposal of the foreign operation.
Does this replace consolidation software?
No. This is an educational planning tool. Full consolidation requires intercompany eliminations, goodwill, hyperinflation adjustments, and functional currency determination under professional guidance.