Hi, I would like to ask why the exchange gain or loss of Investment in Subsidiary is recorded in statement of changes in equity rather than in income statement

However, the exchange gain or loss of Loan is recorded in income statement directly.

From my understanding, Loan is borrowed for trading, but investment is not.

But why do people assume that loan is borrowed for trading purpose, but investment in subsidiary is not?

Thank you very much.

Because normally we borrow money to finance our trading activities. Loan is necessary(if business does not have much retained earnings)for a business to carry on while business invests when it has money surplus to its trading requirement.

Hope this helps

Hi, yes, it is very helpful.

Thank you very much

Investment in Subsidiary is accounted for under IAS-21 and IFRS-3 and these standards have stated that any exchange gains or Losses on translation of foriegn investment should be taken through Equity directly unless they are accounted for as Hedg item which should be delt with in IAS-39(similar to cash flow hedge where effective portion is taken to Reserves and Ineffective portion is taken to P/L).

Loans are usually accounted for under IAS-39 under the provision of "Loans and Recievable" which states that any gains or losses should be recognised directly in the income statement.

Regards,

Muhammad Amir.