Foreign Subsidiaries (With Illustrations) | Accounting

Foreign subsidiary companies should be consolidated along with other subsidiary companies in the usual manner. This will be possible only if the trial balance of the foreign subsidiary is first converted into ‘home’ currency. The rules for conversion are the same as for foreign branches.

There may, however, be subsidiary companies in some countries where the political or economic conditions do not permit free transactions, specially remittance of profits to the holding company. Severe exchange restrictions will lead to such a state of affairs.

In the case of such foreign subsidiaries, consolidation is not recommended. Instead, the equity method should be followed.

Illustration 1:

The following summarised balance sheets as on March, 2012 are given:—

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