The foreign currency valuation is arguably the easiest ledger position valuation to understand. It is always relevant if the position currency differs from the valuation currency. The foreign currency valuation adjusts the value of the position in the valuation currency to the current exchange rate between the position and valuation currency in accordance with the accounting principle.

This step determines the gains and losses resulting from changes in the exchange rate. Determining the write-up / write-down amount in a foreign currency:

The purchase value (= acquisition value) and the book value of the position are determined in position and valuation currency.

The new book exchange rate is determined by comparing the following exchange rates in accordance with the rules defined in the position management procedure.

Current market exchange rate

Old book exchange rate

Acquisition exchange rate

The foreign currency write-up / write-down amount in valuation currency is determined as follows:

(Book value of the position in position currency x New book exchange rate) – (Book value of the position in position currency x Old book exchange rate) = Foreign exchange write-up/write-down amount in valuation currency.

The related configuration

  1. The Type of step should be 005.

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    2. Procedure for a Step

The procedure is a user-assigned four-character name for a valuation step that is defined in the context of a key date valuation. The name is only unique within a valuation category. This means that, for example, an amortization procedure and a rate valuation procedure may both have the same name.

    3. Price/Rate Type

You use the Exchange Rate Type field to define which exchange rate is relevant for the valuation: for example, the middle rate, bid rate, or similar rates.


4. Component for Valuation

For the component for valuation, you almost always select the Book Value option. You can select the Amortized Acquisition Value option if you perform an amortization for the position. You can also choose whether this valuation is supposed to be carried out for the key date valuation or for the calculation of derived business transactions or only for the key date valuation (Amortized Acquisition Value; Only at Valuation option)

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You separately define how write-ups and write-downs are to occur: here, the Write Up/Down to Market Value, Write Up/Down to Purchase Value, and No Write Up/Down options are available. Based on these parameters, we can already understand what the system calculates with a foreign currency valuation. The basis, which is the book value in most cases, is translated from the position currency into the valuation currency using the key date rate. This value is compared to the present book value in the valuation currency. In accordance with the rules for the write-up or write-down, the system generates a flow of the difference and posts this with the update types of the (V202) and (V203) fields.

    5. Gain/loss handling

In terms of the possible Gain/Loss Handling settings, according to IFRS, although financial instruments in the Available for Sale holding category are shown with their market price in the balance sheet, changes to the market price must not be entered in the P/L. They are, in fact, posted in the shareholder’s equity/other comprehensive income. The provisions in the equity capital are dissolved into P/L only when the financial instrument expires or is sold. You achieve this behavior using the Do Not Realize Gains/Losses setting mentioned. In addition to the Foreign Exchange Valuation component, the system manages a second component, Foreign Exchange Valuation Not Affecting P/L. The system also uses update types of fields (V202) and (V203) from Figure 5.46. Naturally, you must assign another account determination.

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