How does currency translation work under IAS 21 for a foreign subsidiary?

For a subsidiary whose functional currency differs from the group's presentation currency, you use the current-rate (closing-rate) method. Assets and liabilities are translated at the closing rate at the reporting date; income and expenses at the rate at the transaction date (in practice the average rate for the period); and equity at historical rates. The resulting exchange differences don't go through profit or loss — they're recognized in OCI and accumulated in a separate foreign-currency translation reserve (CTA) in equity. This keeps FX noise out of operating results. The cumulative translation reserve is reclassified (recycled) to P&L only when the foreign operation is disposed of or control is lost. Goodwill and fair-value adjustments on acquisition are treated as assets of the foreign operation and also retranslated at closing rate.