Accounts drawn up in a foreign currency: FA 2009: change in operating currency: example of carried forward losses
Example of carried forward losses
This guidance applies to accounting periods beginning on or after 29 December 2007
During the year ended 31 December 2008, a company has a functional currency of US$. During the year ended 31 December 2009, the functional currency of the company changes to sterling.
The taxable results are as follows:
|Year ended 31 December 2008 -||$12m trading loss|
|Year ended 31 December 2009 -||£2m trading profit|
|Year ended 31 December 2010 -||£20m trading profit|
The relevant $/£ exchange rate is the spot rate on 1 January 2009: 1:1.5
The first step is to translate the dollar loss in 2008 into a sterling loss. This would be at the spot rate on 1 January 2009 (1:1.5) and results in a sterling loss of £8m.
As all profits after 31 December 2008 are computed in sterling, the £8m loss would be offset as per normal rules - i.e. £2m offset in 2009 and the remaining £6m offset in 2010. There is no need for any further translations.