HEAD OFFICE

The term parent company refers to a company that owns all or the majority of
the shares of one or more companies, which allows one to have control
administrative, financial and operational, due to their participation in them.
In order for one company to own the majority of the shares in another, it must be
owner of at least 51% of the total voting shares.
The parent company is also referred to as the controlling or dominant company, as it is the
that dictates the norms, policies, and management procedures that must
observe and comply with its subsidiaries.

Subsidiary:
It is a company controlled by another called Parent Company, which is the
owner of more than 50% of the company's shares, its financial statements
are presented in a currency different from the currency of the Parent Company and
Legally, it is governed by the laws of the country where it is incorporated; without
embargo is governed by the established administrative policies and procedures
by the Headquarters.
Branch:
"It is a sales room or store created by a company, in a different place than
this, with the aim of increasing its sales. The branch operates in a semi-
independent of the company that created it. This option is used by the producer or
distributor when he wants to have greater control over the points of sale of his
products, as well as having more closeness with customers
The branch supplies the orders or requests from customers directly with
its product stock, is responsible for managing its credits and accounts
to be collected, has a bank account, the payment of the checks is authorized by the manager of
the branch and carries a complete set of accounting books.
23
The fundamental difference that exists between Matrices and Subsidiaries and
Agencies and Branches consist of the fact that the Parent Company and the Subsidiary are two companies.
completely different, related to each other by the property of the
shares of the Subsidiary that the Parent Company owns, however; the Agencies and
Branches are an integral part of a single company, which rely on
directly from this.

Definitions Agency:
"The agency can be defined as an office owned by a company located
in a distant place from this, with the purpose of serving as an intermediary between the company
and its clients in a completely dependent manner on it. For this reason and because of the
advantages that it 23 The fundamental difference that exists between Matrices and
Subsidiaries and Agencies and Branches, lies in that the Parent Company and the Subsidiary are
two completely different companies, related to each other by the
property of the shares of the Subsidiary held by the Parent Company, however;
The Agencies and Branches are an integral part of a single company, which
depend directly on this. Change or conversion:
When consolidating financial statements, consideration must be given to
the exchange rate, since the financial statements of the subsidiaries must be
converted to the functional currency of the parent company, in this case Quetzales, without
embargo; derived from the International Accounting Standards (IAS-21), not
clearly specify the exchange rates for the conversion of financial statements,
It is necessary to focus on the Financial Accounting Standards issued for the
United States of North America 'Financial Accounting Board' by its initials
English (FASB) regarding the conversion of financial statements indicate in the
FASB-52: The objectives of financial statement conversion are to measure and
express the figures in the functional currency of the Parent Company, in accordance with
International Accounting Standards, with the aim of:
Recognize real economic effects
• International comparability 24 • Correct analysis and interpretation The importance
FASB-52 provides information to foreign shareholders for purposes

Know the situation of the subsidiary in 'YOUR' currency

Being available to consolidate
Eliminate accounting principles not accepted in our country and include those that are.
applicable.
The Financial Accounting Standard issued for the United States
America, FASB-52 provides the following table for identifying the rates of
conversion that must be used:
TYPE OF CONVERSION CLOSING ASSETS Historical Cash X Investments
temporaries At cost X Market value X Accounts receivable X Provision for
uncollectible accounts
X Gastos pagados por anticipado X Depósitos reembolsables X Adelantos a
unconsolidated subsidiaries X Property, plant and equipment X Depreciation
accumulated X Patents and trademarks X Right of key X Other intangible assets X
25 TYPE OF CONVERSION PASSIVES Historical Closure Accounts and documents
to pay X Accumulated expenses to pay X Refundable deposits X Interest
deferred X Loans, bonds and other long-term debts X Premiums and discounts not
amortized on bonds and documents payable X Capital and capital reserves X
Retained Earnings X Currency Exchange Symbols: H = Historical M = Average C =
Current
To carry out the conversion of financial statements, it must be considered that all
components of these are converted at the current exchange rate. For assets and
liabilities, the exchange rate in effect on the date of the balance sheet will be used. For
income, profits, and losses will use the exchange rate in effect on the date of
which these elements are recognized, because in general converting the
numerous incomes, expenses, profits, and losses at the current exchange rate to the
the date on which it is recognized is impractical, an exchange rate can be used
weighted average for that period. Likewise, it should be taken into account
consideration that within the categories of assets and liabilities there are accounts that
they have to be converted at the historical exchange rate, as detailed in the table
previous.
26
It is the ratio used for the exchange of two different types of currencies,
or the relationship that arises from comparing two different types of currencies, which
fluctuates derived from the supply or demand that exists for that currency in the medium
national.
Current exchange rate:
The current exchange rate is the relationship between the unit of a currency and the amount.
of another currency for which that currency can be exchanged at a moment
determined. When the ability to negotiate two has been temporarily lost
currency at market conditions, the exchange rate to be used will be the first one
to focus on a later date, where currencies can be negotiated. For
financial statement conversion effect, the current exchange rate is the prevailing one
at the closing of the period covered by the financial statements or on the dates of
recognition in the financial statements, of revenues, expenses, profits and
losses.
Buyer-seller exchange rates:
At the time of making any transaction with foreign markets, it will be
of utmost importance, to buy or sell the currency in question.
Currencies can be regularly bought or sold in the banking system.
according to the rate stipulated for the purpose by the banks, which are quoted with
regarding the dollar of the United States of North America, with some variations in the
price between one bank and another. This is because it is the banking system that manages
these operations, the publications made regarding the quotation of the
days are made from this perspective; that is to say when it says,
"buyer" refers to the purchase that the bank may make of currencies, and when
refers to "seller" it refers to the exchange rate at which the bank is setting.
"the currency for sale." (10:55)
Spot exchange rate:
It is the exchange rate established for currency exchanges with delivery
immediate, (current exchange rate).
Currency or foreign money:
It is a currency different from the functional or legal tender currency of the entity to which
it is referred to.
Foreign currency operations:
They are all those transactions whose terms are established in a currency.
different from the functional currency of the entity. The transactions in currency
foreigners originate in a company when: 28
a. Buys or sells goods or services on credit whose prices are found
established in foreign currency.
b. Request or grant loans, whose amounts to be paid or collected are
established in foreign currency.
c. It is part of an unexecuted exchange contract, which is expressed in
foreign currency.
d. Acquire or sell assets, incur or cancel liabilities, as long as the
negotiations have been established in foreign currency.
That is why foreign currency transactions can generate accounts receivable.
to charge or to pay that, when a variation occurs in the exchange rate of
the functional currency and the currency in which the transaction is denominated, generates
a difference between the value recorded in the accounts and the value that should be collected
to pay for that transaction, which is known as "Exchange Differential",
which will be accounted for in the period or fiscal year in which it is generated by the
collection of the obligation or payment of the debt and will be recognized as a component
separate from net worth.
Forward exchange contract:
It consists of an agreement to exchange different currencies on a date.
determined in the future and at a specific exchange rate (at the exchange rate of
contract).
29 Local currency:
It is the legal tender of a particular country, which the entity uses to
it refers to, in this case: (Guatemalan Commercial Company, S.A.,
Quetzals; Salvadorean Commercial Company, S.A. de C.V., US Dollars; and
Honduran Commercial Company, S.A. de C.V., Lempiras.
Informative currency or report:
It is the currency of the country where the consolidated financial statements are prepared.
of the parent or main company (head office).
Functional currency:
The functional currency of an entity is understood to be the currency of the economic environment.
The primary currency in which the entity operates is generally the currency of the environment.
in which the entity mainly generates and spends funds.
The functional currency of an entity is essentially a matter of fact, in
Under some circumstances, the facts clearly identify the functional currency, in
other cases do not do it. To determine the functional currency, IAS-21 in its
Paragraph 9 states that the entity must consider the following factors:
a) The currency: 30

i) That fundamentally influences the selling prices of goods and services

(often it will be the currency in which prices are denominated and settled)
sale of goods and services); and
from the country whose competitive forces and regulations determine
fundamentally the selling prices of their goods and services.
b) The currency that fundamentally influences labor costs of the
materials and other costs of producing goods or providing services (with
frequency will be the currency in which such costs are denominated and settled). In the
Paragraph 10 of NIC-21 indicates that the following factors may also provide
evidence regarding the functional currency of an entity:
a) The currency in which the funds for financing activities are generated
(that is, the one corresponding to debt and equity instruments.
issued).
b) The currency in which the amounts collected for the activities are maintained
exploitation. According to paragraph 11 of NIC-21, it will also be considered,
following factors in determining the functional currency of a business in the
foreigner, as well as when deciding if this functional currency is the same as the
corresponding to the reporting entity (in this context, the reporting entity
it has the business abroad as a branch): 31
a) If the business activities abroad are carried out as a
extent of the entity that informs, instead of doing so with a significant degree
of autonomy. An example of the described situation will be when the business in the
foreigners may only sell imported goods from the entity that reports, and send to the
same amounts obtained.
b) If the transactions with the reporting entity constitute a proportion
raised or reduced of business activities abroad. c) If the flows
The cash flow from business activities abroad directly affects
the cash flows of the reporting entity, and are available to be
referred to it.
d) If the cash flows from business activities abroad are
sufficient to meet the obligations for current and expected debts, in the
normal course of activity without the reporting entity having to provide funds for its
disposition.
When the indicators described earlier are contradictory, and it does not result
Obviously, what the functional currency is, the direction will use its judgment to determine
the functional currency that most accurately represents the economic effects of the
transactions, events, and underlying conditions. As part of this process, the
the direction will give priority to the fundamental indicators of paragraph 9, before
to take into account the indicators from paragraphs 10 and 11, which have been
designed to provide additional evidence to support the determination
of the functional currency.

32 The functional currency of the entity will reflect the transactions, events and
conditions that underlie and are relevant to it. In accordance with this,
once the functional currency is decided, it will not change unless there is
a change in such transactions, events, or conditions.
Functional currency change:
IAS 21 states in paragraph 35 that when a change of currency occurs
functional in the entity, it will apply the conversion procedures that are
applicable to the new functional currency prospectively from the date of
change.
In paragraph 36 it states that the functional currency of the entity must reflect the
transactions, events, and conditions that underlie and are relevant to it.
According to the above, once the functional currency has been determined,
it can only be changed if the same ones are modified. For example, a change in the
currency that significantly influences the selling prices of goods and
services, could lead to a change in the functional currency of the entity. For
last in paragraph 37, IAS 21 indicates that the effect of a change in currency
functional will be accounted for on a prospective basis.

That is to say, the entity will convert all items to the new functional currency.
using the exchange rate on the date it occurs. The amounts
resulting already 33 converted, in the case of non-monetary items, will be considered
as their corresponding historical costs.
The exchange differences arising from the conversion of a business in the
foreigners, who would have previously been classified as components of the
net worth, will not be recognized in the result of the exercise until the business
abroad be alienated or disposed of by another means. Company
informant: It consists of an entity or a group to whose financial statements it is made
reference, the financial statements reflect: The financial statements of one or
more foreign entities through the combination, consolidation, or method of
Asset valuation. Transaction date: It is the date on which a
transaction (for example, a sale or purchase of goods or services) is recorded
in the accounting records according to the accounting policies and procedures of
an entity and in accordance with International Accounting Standards. 2.3
Advantages of a parent company The main advantages of the company agreement
matrix are the effects of leverage, protection against risk and the fact that
that control can be obtained without negotiations. 34 Leverage effect: A
The parent company agreement allows a company to control a large amount.
of assets with a relatively small investment. In other words, the owners
a parent company can control significant amounts of assets
greater than those they could acquire through mergers. Protection against the
risk: Another advantage of the parent company agreement is that the bankruptcy of
one of the companies that make it up does not result in the bankruptcy of the entire
parent company. Since each subsidiary is a separate company, the bankruptcy of
one of these should cost the parent company, at most, only its investment
in that subsidiary. Absence of negotiations: One of the greatest advantages of
The parent company's agreement is the relative ease with which it can be acquired.
the control of a subsidiary. The parent company can obtain control of another
company acquiring more than 51% of the capital shares, which gives it the
right to implement administrative and sales policies and procedures,
financial, etc., for which generally the approval of the
other shareholders (the minority). 35 2.4 Disadvantages of a parent company: Among
The main disadvantages of a parent company include taxation.
multiple, the multiplication of losses and high administrative expenses. Taxation
multiple: Like the parent company's income from its subsidiaries
they are in the form of dividends, some of them are taxed twice, since the
subsidiary, before paying dividends, must pay taxes on its
utilities, likewise the parent company according to article 8 of the Tax Law
of Fiscal Stamps and Special Sealed Paper for Protocol, you must pay 3%
tax stamps when paying dividends to shareholders. Multiplication of the
losses: The multiplication of losses arises when the conditions
General economic conditions are unfavorable for the subsidiaries, which may
result in the collapse of the parent company. To some extent, the degree
risk is a function of the degree of pyramid structure and general stability
of the subsidiaries' profits. High administrative expenses: Generally a
holding company is a more expensive form of commercial organization of
manage.
The greatest expense is generally attributable to the maintenance cost of each
company as a separate entity. 36 Additionally, the coordination of
internal operation policies and procedures between the parent company and its
subsidiaries usually require additional staff to maintain the channels of
communication.
2.5 Methods for accounting for subsidiary investments According to standards
International accounting standards, IAS 28 in its paragraphs 6 and 7 defines two methods
to register the investment in associated companies, being these:
2.5.1 Cost Method Under the cost method, the investor or parent company
records at the acquisition cost its investment in the participating company, which
remains unchanged. The investor recognizes income only to the extent that
receives the accumulated profit distributions of the participating company, after
the acquisition date by the investor. The dividend distributions for
above such accumulated profits are considered return on investment,
and therefore they are recorded as a decrease in its cost. If the
company in which shares are held (subsidiary), reports losses in
operation continuously, or other factors indicate that the value
investment has decreased, the recorded cost must be reduced against
results.
37 2.5.2 Participation method Under the participation method, the investment
It is initially recorded at cost, increasing or decreasing its book value.
to recognize the part that corresponds to the investor in the losses or
earnings obtained by the invested company after the acquisition date.
The investor will recognize, in their results for the period, the portion that corresponds to them.
correspond to the results of the participant. The profit distributions
retained earnings received from the affiliated company reduce the book value of the
investment. Other adjustments to the book value may also be necessary.
investment, to collect the alterations of the investor's portion of the equity
net income of the subsidiary that have not passed through the income statement. Among these
changes include those derived from the revaluation of properties, plant,
team, of the investments, the variations in exchange rates of currencies and
of the adjustments due to the differences arising from the business combination. The
the portion that corresponds to the investor in those changes will be recognized directly
in their net worth.
2.6 Accounting using the cost method "When the investment is managed by
the cost method, after a certain time has passed, the elimination of the
balances of the investment account in the subsidiaries of the parent company and capital
accounting in the subsidiary is carried out based on the figures with the value in
book of their actions, on the date they were acquired, therefore the
results obtained by the 38 subsidiary, after the date of its acquisition
they become part of the consolidated profit or loss." (10:30) For example, the
Company AZ (parent company) decides to acquire 60% of the shares of Company BX
(subsidiary) for the amount of Q.2,700,000.00 in common shares, and that the following
In the year, it earns profits of Q.1,750,000.00 and pays dividends to the parent company.
for Q.575,000.00. The parent company must account for the operation of the
-----Item No. 1----- DEBIT CREDIT Investment in Company BX Q
2,700,000.00 Cash and Banks Q 2,700,000.00 Record of the acquisition of 60% Q
2,700,000.00 Q 2,700,000.00 of the shares of Company BX ----Item No. 2-
Cash and Banks Q 575,000.00 Dividends received Q 575,000.00 Record of
pago de dividendos de la Q 575,000.00 Q 575,000.00 Compañía BX 2.7
Accounting by the equity method "In the equity method, the
investment is an item on the investor's balance sheet, and the profits or
Losses on investment are an item in your income statement. To this method
it is called single line consolidation, because the only difference
between this method and consolidation lies in the amount of details that are
exposed." (10:31) 39 Continuing with the same example, the operations must be
account as follows: ----Entry No. 1---- DEBIT CREDIT Investment in
Company BX Q 2,700,000.00 Cash and Banks Q 2,700,000.00 Registration of the
acquisition of 60% Q 2,700,000.00 Q 2,700,000.00 of the shares of the
Company BX ----Batch No. 2---- ** Investment in Company BX Q 1,050,000.00
Profit Company BX Q 1,050,000.00 Record of the profit of Company BX Q
1,050,000.00 Q 1,050,000.00 in proportion to our investment ---- Item
No. 3---- Cash and Banks Q 575,000.00 Investment in Company BX Q 575,000.00
Record of dividend payment of Q 575,000.00 Q 575,000.00 Company BX
To determine the value to be recorded in entry No. 2, the parent company proceeded to the
next form: Utility of the subsidiary Q.1,750,000.00 by the percentage of
participation (60%) is equal to Q.1,050,000.00 Derived from the movements
registered in the accounting of Company AZ (parent), regarding the investment
made in Company BX (subsidiary), the book value of that investment is
Description
2,700,000.00 Partida No. 1 ( + ) 60% de las utilidades de Compañía BX 1,050,000.00
Entry No. 2 ( - ) Dividends paid by Company BX (575,000.00) Entry No.
3 Book value of the investment Q 3,175,000.00 40 2.8 Minority interest Consists
in the equity section of a subsidiary company, held by shareholders
alien to the parent company, as they have a share in the profits or losses
of the subsidiary company, for which it must be considered that the
elimination of gains or losses between companies must be allocated
proportionally between majority and minority interests. "The participation
the minority is not considered an integral part of the capital, as it is considered that this
interest represents the rights of individuals over the consolidated net assets and
it is presented in the consolidated balance sheet between liabilities and equity.
however; according to the specialists, the consolidated capital is composed of
minority interest and the interest that exerts control which should be part of
of the same, but in practice this form is not used. When the participation of the
minority is not important, its separate classification is not necessary in the
consolidated balance sheet, some companies present it within liabilities. The
minority participation in the consolidated net income is represented as a
deduction to the same.
Minority = Shares outstanding of X Subsidiary the Subsidiary 41 The amount of
The profits or losses between companies that need to be eliminated are not affected.
due to the existence of a minority interest. The complete elimination of profits
or losses between companies, agrees with the fundamental assumption that the
Consolidated financial statements represent the financial position and the
results of operation of a single commercial enterprise. The elimination of the
gains or losses between companies can be assigned proportionally
between the majority and minority interests. In an unusual case where the
losses applicable to minority interest exceed the participation of the interest
minority in the capital of the subsidiary, such excess as well as any loss
additional applicable to minority interest must be charged to majority interest, already
that there is no obligation for the minority interest to account for such losses.
However, if future profits are obtained, the majority interest must be
credited with the amount of such previously absorbed losses.