Foreign Currency Valuation Simplified

Please note that the document shows Classical G/L screenshots, but, the concept of Forex calculation is still the same.

When we use the Foreign Currency Valuation Run in the month end close process, the exchange loss/gain posted is Unrealized and is reversed at the beginning of the next month. Actual Realized Gain/Loss is when we clear the open items on receipt/sending payment.

Configuration in OB22 for Parallel Currencies

As per the settings above

• Translation to Local Currency is as per Translation Date and taking Transaction currency as basis
• Translation to Group Currency is as per Translation Date and taking First Local currency as basis

Documents to be Valuated

2 of the Customer Documents Posted are as below. We will look into the Unrealized Forex Gain/Loss calculations for these documents.

Note that on the Document Posting date, Exchange Rate type ‘M’ would be used

OB08 Rates

Amount in Transaction Currency = Amount in Group Currency (LC2) = 1050 USD

Amount in Local Currency (CAD)

= Amount in USD / (CAD-USD rate on 02/10/2016)

= 1050/0.71929

= 1459.77

OB08 Rates

1001 has USD defined as Reference currency. Hence, all valuations would be with reference to USD (i.e. USD would be the intermediary currency)

Recon Account

Recon Account of the Customer: 11000

Valuation Run to Local Currency (Currency Type = 10)

As per OB22 settings the Translation is to happen from Transaction Currency to Local Currency

OB08 Rates

Exchange Rate type ‘1001’ would be used as set up in Valuation Method ZBAL for Month End

Exchange Rate Type ‘M’ would be used on Document Posting Date

USD to CAD on Document Posting Date

=1/(CAD-USD rate on 02/10/2016) = 1/0.71929 = 1.39026

USD to CAD on Month End

=1/(CAD-USD rate on 02/29/2016) = 1/0.7388 = 1.35355

Difference for document 6000000030

= Amount in USD * (USD to CAD on Month End – USD to CAD on Document Posting Date)

=1050 * (1.35355 – 1.39026) = -38.55

GBP to CAD on Document Posting Date

= (GBP-USD rate on 02/10/2016) / (CAD-USD rate on 02/10/2016) = 1.44344/0.71929 = 2.00676

GBP to CAD on Month End

= ( GBP-USD rate on 02/10/2016) / (CAD-USD rate on 02/29/2016) = 1.39519/0.7388 = 1.88845

Difference for document 6000000033

= Amount in GBP * (GBP to CAD on Month End – GBP to CAD on Document Posting Date)

=1350 * (1.88845 – 2.00676) = -159.71

The Account Determination for posting Unrealized Gain/Loss for Currency Type = 10

Below is the posting from Foreign Currency Valuation Run. Since the difference is negative and the document is customer document, it is a loss.

Posting Date = 02/29/2016

Reversal is also posted by the Foreign Currency Valuation Run.

Posting Date = 03/01/2016

Valuation Run to Local Currency (Currency Type = 30)

We are running for Feb Month End with the Valuation Method created “ZBAL” and Currency Type = 30 (USD)

OB08 Rates

Below is the posting from Foreign Currency Valuation Run. Since the difference is positive and the document is customer document, it is a gain.

Posting Date = 02/29/2016

Link to understanding Realized Gain/Loss –> Simple Example for understanding Realized Forex Gain/Loss