Manufacturing Groups · Track 2 · Tutorial 2 of 3
Treat a long-term loan to a foreign factory as part of the net investment
A loan to a factory abroad that is never meant to be repaid is part of the group’s investment in it. Its exchange difference belongs in the CTA reserve, not in the group’s profit.
1Know the treatment
Your Group reports in SGD. Company A, the holding company, keeps its books in SGD. Company M, a factory in Malaysia, keeps its books in MYR, and sells its goods to Company D, the group’s distributor in Singapore, in SGD. The figures are illustrative.
Company A lends Company M SGD 500,000 to build a production line. There is no plan to have it repaid, and repayment isn’t likely in the foreseeable future: in substance, the loan is part of the group’s investment in the factory, its net investment (IAS 21.15).
| In Company M’s books | The loan is in SGD, so Company M retranslates it into MYR every month and books the exchange difference in profit or loss. |
|---|---|
| In the group’s accounts | The difference belongs in other comprehensive income, in the CTA reserve with the rest of Company M’s translation (IAS 21.32). It stays there until the factory is sold. |
| A loan that will be repaid | Isn’t part of the net investment. Its difference stays in profit or loss: there is nothing to move. |
In October, MYR moves from 3.2000 to 3.2500 to the SGD. Company M’s liability grows from MYR 1,600,000 to MYR 1,625,000, and it books a loss of MYR 25,000 to 7200 FX Gain/Loss. At October’s average rate of 3.2000, that is SGD 7,812.50 in the group’s profit and loss.
2Eliminate the loan as usual
Eliminate the loan under Intercompany → Intercompany Loans, as in Eliminate loans and interest. Company M’s MYR 1,625,000 at the closing rate of 3.2500 is SGD 500,000, the same as Company A’s receivable, so the two sides match.
Eliminating the loan doesn’t touch the exchange loss: it is in Company M’s profit and loss, not in the loan accounts.
3Move the difference to the CTA reserve
- Select Your Group, and open Adjustments → Currency translation → CTA / FCTR. Choose Actual and Oct-2026.
- Click Add Manual CTA Journal. The date starts at the end of the month.
- Enter the Journal ID CTA-NI-M-2026-10. The Journal Type is CTA / Foreign Currency.
- In Related company, choose Company M.
- Enter the Description FX on net investment loan from Company A, October 2026.
- Debit 3500 CTA Reserve 7,812.50, credit 7200 FX Gain/Loss 7,812.50, and click Confirm.
For a gain, the lines run the other way. If the loan were in MYR instead, the difference would be in Company A’s books; move it the same way.
4Repeat it every month
A manual CTA journal is for one month: it can’t recur. Each month, take the exchange difference on the loan from Company M’s FX account, translated as it is in the group’s profit and loss, and post it the same way with that month’s Journal ID.
Check
The journal is listed under Manual CTA Journals for October. October’s group Profit & Loss shows 7,812.50 less exchange loss, and 3500 CTA Reserve on the Balance Sheet is 7,812.50 more negative. Company M’s row under Auto CTA Journals is unchanged.
More on manual CTA journals, including how to delete one: Correct the CTA with manual journals.
5If something goes wrong
| What you see | What to do |
|---|---|
| CTA journals require a related subsidiary selection. | Choose Company M in Related company. |
| Please provide at least one debit and one credit line with amount greater than zero. | Enter both lines with their amounts. |
| Add Manual CTA Journal can’t be clicked | The subscription is on Standard or the Free plan’s limit is reached, or the group has no accounts yet. |
| Period Oct 2026 is locked. Contact administrator. | Ask an administrator to unlock the month. |
| The loan elimination leaves a difference | The loan isn’t booked at the same amount on both sides, or a rate is wrong. See Eliminate loans and interest. |
Want more detail? See the documentation