What is the benefit of transferring translation reserve to reserves on first time adoption of IFRS?

Question

Need to know about the benefits of transferring 'translation reserves' to 'opening retained earnings' on first time adoption of IFRS?

For e.g: One of my foreign subsy 'A' was having Translation reserve of USD 100 mn on 31st March'15. On 1st April'15 being the transition date, we transferred all of USD 100 mn to opening retained earnings as per IFRS 1.

Now on disposal of A, are we now supposed to show USD 100 mn as expense and ultimately deduct the same from profit?

if yes, then what was the benefit of making translation reserve 'zero'?

Answer 1

Here is yours answer as per standard.

It is required for an entity:
(a) to recognise some translation differences in other comprehensive
income and accumulate these in a separate component of equity; and
(b) on disposal of a foreign operation, to reclassify the cumulative
translation difference for that foreign operation (including, if applicable,
gains and losses on related hedges) from equity to profit or loss as part of
the gain or loss on disposal

Comments

I agree with point (a) but for (b) reclassification from equity to profit and loss account. Should i reclassify FCTR related to pre-transition date?

For e.g: FCTR generated

before 1-04-15 (transition date) is USD 100 mn (transferred to opening retained earnings)

after 1-04-15 is USD 25 mn (in translation reserve).

Now on disposal, which amount should be reclassified through profit and loss account?

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As per standard, Only USD 25 mn should be reclassified through profit and loss account

Answer 2

As per standard, Only USD 25 mn should be reclassified through profit and loss account

Comments

But in that case, how the retained earnings of disposal subsidiary will be disposed off? If I have added translation reserve to my retained earnings by USD 100 mn then how it will be treated on disposal?

As per above discussion, my consolidated retained earnings will be inflated by USD 100 mn even after disposal of subsidiary.

Answer 3

Read these paragraphs carefully i hope that this resolve your issue

In my previous answers i mistakenly mentioned what IAS 21 requires from us normally,But What IFRS 1 requires from us to do under above mentioned sitiuation, is that

 A first-time adopter need not comply with these requirements for cumulative translation differences that existed at the date of transition to IFRSs. If a first-time adopter uses this exemption:

(a) the cumulative translation differences for all foreign operations are deemed to be zero at the date of transition to IFRSs; and

(b) the gain or loss on a subsequent disposal of any foreign operation shall exclude translation differences that arose before the date of transition to IFRSs and shall include later translation differences.