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Sale of foreign subsidiary (CTA)
We are disposing of a subsidiary and taking a total loss on the sale. (Credit to Asset, Debit to Loss)
This subsidiary is in a different currency from the parent company and so there are CTA implications.
Since I am recording the credit to equity on the subs books in local currency on the date of investment, the equity is recorded at historical rates. But now when I go to debit the equity at todays rate, there is a residual difference due to translation.
100EUR @ 1.5 = 150 USD (investment date)
100EUR @ 1.2 = 120 USD (today's date)
When I debit equity for 100 EUR, I am left with 0 in equity (local currency). But when it is translated back to USD there is still 30 USD left in equity.
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