When a foreign subsidiary has goodwill from its acquisition, how is that goodwill translated, and where do the FX differences go?

Under IAS 21, goodwill arising on the acquisition of a foreign operation is treated as an asset of the foreign operation — denominated in the subsidiary's functional currency, not the parent's. So at each reporting date the goodwill is retranslated at the closing rate (like the rest of the subsidiary's assets), and the resulting exchange differences go to other comprehensive income, into the foreign-currency translation reserve in equity — not to profit or loss. This means reported group goodwill for a foreign sub moves with the exchange rate each period. The practical implications: it adds FX volatility to the translation reserve; on disposal/loss of control the cumulative translation differences (including those on goodwill) are recycled to P&L as part of the gain or loss; and for impairment testing of a foreign CGU you must be careful to compare like-for-like (carrying amount and recoverable amount in the same currency, retranslated consistently). The common error is fixing goodwill at the historical acquisition-date rate as if it were a parent-currency asset.