Inter-company balance revaluation

This query is : Resolved

kuna sahu (Querist)
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14 June 2018 Hi,

A lot of people are in the confusion if the revaluation of Inter-company loan should be performed or not if the both entities are in the home country.

Scenario:
An Uk central entity called 'ABC' paid some cost of USD 1,000 (in GBP 800pound) on behalf its UK based Subsidiary company.

1.the both entities are UK based.
2.both have GBP bank account only
3.both do inter-company payments in GBP only

Should ABC entity rebill to its Subsidiary company in USD1,000 or GBP 800?

In my case ABC has rebilled to its Subsidiary company mentioning both currencies USD1000 (GBP 800).

Do the Subsidiary company need to revalue the USD 1000 in GBP at the time of inter-company payment and then pay in GBP?

kuna sahu

kuna sahu (Querist)
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26 September 2018 Can someone help me here?

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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09 July 2024 In the scenario described, where both entities (ABC and its UK subsidiary) are based in the UK, operate with GBP bank accounts, and conduct inter-company transactions in GBP, here’s how the revaluation and billing typically work:

### Billing and Revaluation Process:

1. **Initial Transaction**:
- ABC, the central entity, incurred a cost of USD 1,000 (equivalent to GBP 800 at the time of transaction) on behalf of its UK subsidiary.

2. **Billing from ABC to Subsidiary**:
- ABC has invoiced its subsidiary for USD 1,000 and GBP 800.

### Revaluation Considerations:

3. **Subsidiary's Revaluation**:
- Since both entities operate primarily in GBP and maintain GBP accounts, the subsidiary may need to revalue the USD amount to GBP at the time of payment, especially if the payment terms specify payment in GBP.
- The revaluation would typically be done at the exchange rate prevailing at the payment date. This ensures that the financial statements reflect the transaction at the current exchange rate, aligning with accounting standards (e.g., IFRS or UK GAAP).

4. **Payment in GBP**:
- The subsidiary, after revaluing the USD amount to GBP, would make the payment in GBP based on the GBP equivalent of USD 1,000 at the current exchange rate.

### Practical Steps:

- **Revaluation Date**: The subsidiary should determine the exchange rate on the date of payment or at the end of the reporting period if the transaction spans multiple periods.
- **Accounting Treatment**: The revaluation difference (if any) due to fluctuations in exchange rates would typically be recorded in the subsidiary's financial statements under relevant accounting standards (such as as foreign exchange gains or losses).
- **Internal Controls**: It's important for both entities to have clear internal controls and procedures regarding foreign currency transactions and inter-company dealings to ensure compliance and accurate financial reporting.

### Conclusion:

In summary, while the initial invoice from ABC to its UK subsidiary may list both USD 1,000 and GBP 800, the subsidiary will generally revalue the USD amount to GBP at the payment date. This revaluation ensures that the transaction is accounted for accurately in GBP terms, reflecting any exchange rate differences at the time of payment. This approach helps maintain transparency and accuracy in financial reporting between the inter-company entities.

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