I am preparing a Consolidated Cash Flow Statement for a company with several international locations. I know that the correct way to prepare this statement is to prepare the subsidiary Cash Flows in local currency and then translate using an average exchange rate.
My question is related to changes in Other Comprehensive Income and how they should be presented on the Cash Flow. My current company has two sources of OCI:
1. Translation of local subsidiaries financial statements in consolidation due to Balance Sheet at month end rate and Income Statement at avg rate-OCI recorded upon translation
2. Foreign-currency gains and losses on intercompany accounts that are essentially permanent and are excluded from the determination of net income and instead are recorded as OCI.
The first source will not affect the CF since the CF is prepared in local currency and this OCI is not yet generated.
The second source, however, is essentially recorded on the parent company's books and changes each month end. How should this change be presented on the Cash Flow? I currently have just included on the "Effect of Exchange Rate Changes on Cash"???
My question is related to changes in Other Comprehensive Income and how they should be presented on the Cash Flow. My current company has two sources of OCI:
1. Translation of local subsidiaries financial statements in consolidation due to Balance Sheet at month end rate and Income Statement at avg rate-OCI recorded upon translation
2. Foreign-currency gains and losses on intercompany accounts that are essentially permanent and are excluded from the determination of net income and instead are recorded as OCI.
The first source will not affect the CF since the CF is prepared in local currency and this OCI is not yet generated.
The second source, however, is essentially recorded on the parent company's books and changes each month end. How should this change be presented on the Cash Flow? I currently have just included on the "Effect of Exchange Rate Changes on Cash"???