Intercompany transactions 7-4 PwC The CTA balance results from USA Corp’s exposure to MXN and represents the impact of the change in foreign currency (between January 15 and March 31, 20X5) on the beginning balance plus the impact of the difference between the average exchange rate for the period and the exchange rate at March 31, on the transaction loss. It is calculated as follows: [(MXN 500,000/10) – (MXN 500,000/13)] + [(MXN 150,000/11) – (MXN 150,000/13] Mexico SA balance Translated balance USA Corp balance Consolidating entries USA Corp consolidated balance USD denominated loan receivable USD 50,000 (USD 50,000) — USD denominated loan payable (MXN 650,000) (USD 50,000) USD 50,000 — Foreign currency transaction loss MXN 150,000 USD 13,636 USD 13,636 CTA (USD 13,636) (USD 13,636) See FX 4 for information on the accounting for foreign currency transactions and FX 5 for information on translating the financial statements of a foreign entity. See FX 7.5 for information on the accounting for long-term intercompany loans and advances. 7.3Elimination of intercompany profits Intercompany inventory sales often result in an intercompany profit for the seller. The purchase price recorded by the buyer in its standalone financial statements has two components: a “true” cost component and an intercompany profit component. ASC 830 provides guidance on determining the exchange rate to use to eliminate intercompany profits. ASC 830-30-45-10 The elimination of intra-entity profits that are attributable to sales or other transfers between entities that are consolidated, combined, or accounted for by the equity method in the reporting entity’s financial statements shall be based on the exchange rates at the dates of the sales or transfers. The use of reasonable approximations or averages is permitted.