Sunday, September 11, 2016

Revaluation of Currency

Currency Conversion
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1. Converting the currency amount in one currency to a different currency.
Eg: If we have a ledger where the primary currrency is USD ,but we need to create invoices for some customers in EUR.
      In this case, we need to enter the conversion rates to convert the amount in EUR to USD for the amount to be posted in the Ledger currency.

2. Revalutaion
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Consider the case thaat we are in AUG Period of accounting.
Ledger currency: USD
Invoice currency: EUR
We created an invoice on 10th of aug in EUR for 1000EUR.
Consider that the Exg rate was : EUR : USD : 1:2 on that day.
So funtional currency will be 500$.
At the end of the month , when we are plannning to close the period ,  the exg rate between the currencies changed to 1:5
Now the functional currency equivalent for the 1000EUr is 200$.
So this means the current value in ledger currency is decreased by 300$ (Loss).
So to track the exg rate fluctuations for the transactions in the foreign currencies with the Functional currency we will run the revaluation.

Translation
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Consider that the company  have 3 diferent Primary Ledgers with currencies EUR, GBP and USD.
The final consolidation reporting for this company should be done in USD only.
In this case at the month end , we will do the balance translation from each Primary Ledger to the Consolidation ledger currency.
That means we will translate the EUR balance to the equivalent USD balance, GBPo balance to the Equivalent USD balance etc.

This also will be based on the diferent period end rates and Period average rates defined tin the system between the currencies invloved.

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