As a result of the deal, Dover will receive USD24m in cash and will record a non-cash after-tax charge of around USD40m to USD50m due to the write off of net carrying value of assets, including goodwill and foreign exchange
cumulative translation adjustment held in equity.
The
cumulative translation adjustment (CTA) is released into earnings.1 The parent company reduces its ownership interest in the foreign subsidiary, yet retains control (e.g., percentage of ownership interest declines from 100% to 90%).
In addition, a firm must report the
cumulative translation adjustment, the lag
cumulative translation adjustment, the transaction gain or loss, net income, and the foreign income tax.
As we have seen, the
cumulative translation adjustment is a directionally correct approximation for the change in cashflow caused by FX fluctuations.
The adjustment resulting from translating nonmonetary items denominated in the local currency at the rate in effect at the date of the change is classified as a
cumulative translation adjustment component of stockholders' equity.
Entities may set the
cumulative translation adjustment for all foreign subsidiaries to zero at the date of transition to IFRS.
