D365 Finance & Operations and Dynamics AX Forum

Expand all | Collapse all

Foreign Currency Re-Evaluation

  • 1.  Foreign Currency Re-Evaluation

    Posted 21 days ago
    We are trying to think of different solution for foreign currency re-evaluation.  I am curious if anyone  has run into this situation and what their approach is.

    1. I would like the revaluation on the balance sheet side to post to an account within each balance sheet caption on our external financial statements – OOTB requires it to post either directly to the subledger (which I am not in favor of) or to only one FX revaluation account.  This distorts our balance sheet presentation by caption.
    2. Subledger – it is not common to directly revalue the sub-ledgers.  This creates a lot of confusion and I can only allow for this if it has something to do with creating the "realized" gain/loss when the item is actually settled.  Note: The realized gain/loss needs to be calculated on the original inception of the transaction, not from the period from the last revaluation – otherwise, you have a mismatch between unrealized and realized losses (i.e. part of the realized gain/loss is sitting in unrealized gain/loss).  While both methods are possible in SAP, it appears that in d365 it is not.  No one could answer my question on the calculation of the settlement realized gain/loss.
    3. I would like to postings to reverse Day 1 of the subsequent period (because of #2 above) –  the system OOTB will not do this.
    4. I don't know why anyone would revalue the P&L, but all the article and Ian indicated this is so – so I need to understand why…. Why does is a system built to do that when it is not allowed in GAAP in the ledgers – only in consolidation.
    5. We discussed this with a consultant and he couldn't figure out how to make the job work with using only the month end rate.  And he could not answer whether there was something OOTB or if creating a new exchange rate type would cause issues in other areas of what the system was doing.

    Here is an example of what we are looking for:
    Example 1:
    This example shows the journal entries and T-Accounts for a legal expense that is denominated in a currency
    other than the functional currency of the entity.  In this example, the currency continues to move so that the
    exchange difference is always increased from the original date of booking.  A similar example for when the
    currency continues to move in a decreased fashion would just be opposite this example, so none has
    been provided for that case.
    This is the easiest way to see how I would like D365 to work.
    Document Currency Local Currency
    DR CR DR CR
    Legal Expense    300,000.00  EUR          327,795.00  USD 
    Accounts Payable - Third Parties   300,000.00  EUR    327,795.00  USD 
    To book the cost of legal expense due in EUR    300,000.00   300,000.00         327,795.00   327,795.00
    Unrealized Loss on Foreign Exchange                   -    EUR            12,855.00  USD 
    Accounts Payable - Third Party - FX Adjustment                 -    EUR      12,855.00  USD 
    To record the revaluation of open payables at month end                   -                   -             12,855.00     12,855.00
    August
    Accounts Payable - Third Party - FX Adjustment                   -    EUR            12,855.00  USD 
    Unrealized Loss on Foreign Exchange                 -    EUR      12,855.00  USD 
    To reverse the FX revaluation run of August 31                   -                   -             12,855.00     12,855.00
    Unrealized Loss on Foreign Exchange                   -    EUR              6,150.00  USD 
    Accounts Payable - Third Party - FX Adjustment                 -    EUR        6,150.00  USD 
    To record the revaluation of open payables at month end                   -                   -               6,150.00       6,150.00
    September
    Accounts Payable - Third Party - FX Adjustment                   -    EUR              6,150.00  USD 
    Unrealized Loss on Foreign Exchange                 -    EUR        6,150.00  USD 
    To reverse the FX revaluation run of September 30                   -                   -               6,150.00       6,150.00
    Accounts Payable - Third Parties    300,000.00  EUR          327,795.00  USD 
    Realized Loss on Foreign Currency                   -    EUR              4,710.00  USD 
    Cash   300,000.00  EUR    332,505.00  USD 
       300,000.00   300,000.00         332,505.00   332,505.00



    ------------------------------
    Tabitha Arneson
    BlueCrest Inc
    Danbury
    ------------------------------
    Academy - Online Interactive Learning from Experts


  • 2.  RE: Foreign Currency Re-Evaluation

    TOP CONTRIBUTOR
    Posted 18 days ago
    Edited by Zvika Rimalt 18 days ago

    I am not sure I understood all your questions, but I will try to respond to the ones I have. 

    when I look at your accounting example on my computer the format got messed up which made it impossible for me to follow the numbers.

    For question (2) + (3)
    I am not sure I understand what you mean by "it is not common to revalue the sub-ledger" and to which sub-ledger you referred to.

    In D365 you may choose to record in each period (or in year end) unrealized gain/losses per revaluation of your open AP and AR balances.
    This is not mandatory, and whether you do it is based on your company's accounting policy and regulatory requirements - but the system does not "force" you to do it.

    If you choose to re-value your AP and AR open balances every period, the system will automatically reverse the previous period's unrealized gain/loss and post a new unrealized gain/loss based on the current exchange rates.

    when such a balance gets closed through settlement, the system would automatically reverse whatever unrealized gain/losses were recorded against the transaction and will post a REALIZED gain/loss voucher instead.

    Hence I don't believe there is a need to reverse each period's unrealized gain/loss at the first day of the following period.



    ------------------------------
    Zvika Rimalt
    Functional Consultant
    Vancouver BC
    ------------------------------

    Academy - Online Interactive Learning from Experts


  • 3.  RE: Foreign Currency Re-Evaluation

    TOP CONTRIBUTOR
    Posted 18 days ago
    For question (4) - you are correct, companies operating according to GAAP do not revalue their P&L accounts.

    Those ledger accounts therefore needs to be configured to not be included in the GL foreign currency revaluation process (there is a checkbox on each account that needs to be unchecked).

    Also - when you execute the Foreign Currency Revaluation process there is a parameter to to execute the process only against balance sheet accounts.

    Are you asking why it is even POSSIBLE to configure the system to do something that is not GAAP?
    I don't know.... I guess Dynamics 365 is not an idiot-proof system from a configuration point of view, or maybe in some country I don't know it IS a good practice to revalue P&L accounts...

    ------------------------------
    Zvika Rimalt
    Functional Consultant
    Vancouver BC
    ------------------------------

    Academy - Online Interactive Learning from Experts


If you've found this thread useful, dive deeper into User Group community content by role