Old rules: forex and accounts drawn up in a foreign currency: pre 2005: part of business accounts in a foreign currency: more than one foreign currency: example
More than one non-sterling currency: example
This guidance applies for accounting periods between 1 October 2002 and 1 January 2005
Mannwel BV is a Netherlands bank with a branch in the UK. The branch keeps its financial records in euros. However, it makes loans to customers in sterling, US dollars and Swiss francs (as well as euros), and transacts other business with customers in these currencies. It accounts for its sterling, US dollar and Swiss franc ‘books’ as separate parts of its business. It incorporates the results of these operations into the financial statements of the UK branch using the closing rate/net investment method. The profit and loss account of each part business is translated at an average rate for the year.
The company’s accounting date is 31 December. The UK branch is preparing its CT return for the year ended 31 December 2004.
In the year ended 31 December 2003, the UK branch traded at a loss, and there are Case I losses of €500,000 brought forward.
In the year ended 31 December 2004, the separate trading books and the main branch business results have the items of income shown in the following table. Average exchange rates for 2004 are also shown.
|Business or part business||Taxable income (loss)||Average exchange rate|
|Main (euro) business|
|Case I (before CAs)|
|Non-trading loan relationship debits||€1,200,000|
|(€2,000,000)||€1 = £0.600|
|US dollar part business|
|NT LR credits||$3,000,000|
|$50,000||$1 = €1.100|
|Swiss franc part business|
|Case I||(SFr 50,000);||SFr 1 = €0.660|
Translate US dollar and Swiss franc branch profits and losses into euros, using the exchange rate used in the accounts - FA93/S93A(4). The sterling branch profits are not translated into euros - FA93/S93A does not apply here, because the branch financial statements in point are not prepared in a currency other than sterling.
Profits mean income items but not chargeable gains. Losses includes such items as Case I losses, loan relationship debits and management expenses, but not CG losses (FA93/S93A(9)).
Translation into euros gives:
|US dollar part business||Case I, €3,300,000; NT LR credits €55,000|
|Swiss franc part business||Case I, (€33,000)|
Apply the rules in FA93/S93(4). Compute profits and losses in euros, and then translate them into sterling, using the rate that would be appropriate under GAAP for translating the euro accounts into sterling.
The euro computation is therefore:
|Case I - main business||1,200,000|
|US dollar business||3,300,000|
|SFr business||( 33,000)||4,467,000|
|Less capital allowances||( 800,000)|
|Less losses b/f||( 500,000)|
|Net case I||3,167,000|
|NT LR credits||55,000|
|NT LR debits||(2,000,000)|
Translated at the average rate for the year (€1 = £0.600), this gives:
Case I = £1,900,200
NT LR debits = £1,167,000
Compute the sterling profit to go into the CT600 return. The profits of the sterling branch, and any chargeable gains, are added at this stage:
|Case I - from euro computation||1,900,200|
|NT LR debits||(1,167,000)|
|NT LR credits (from sterling branch)||100,000||(1,067,000)|
|Chargeable gains (say)||217,000|
|Profits chargeable to CT||1,800,200|