Lets take some thoughts on Oracle GL Foreign Currency exposure.As we know three key terminology most wildly used in GL that pertain to foreign currency. They are Conversion, Revaluation, and Translation.Lets start with Revaluation:
Revaluation - when ,what & why?
Revaluation is used if, and only if, you have foreign currency transactions (i.e.Conversion of foreign currency transactions). Revaluation uses the Period Rates Table. The Revaluation Rate is simply 1/Period End Rate.
The Revaluation Process:
1.)Finds accounts within the range of accounts specified that have all or a portion of their balance derived from foreign currency transactions;
2.)takes the foreign currency portion of the account balance and revalues it using the Revaluation Rate from the Period Rates Table;
3.)figures the difference between the current cumulative functional balance of these foreign transactions and the revalued functional currency balance calculated using the Revaluation Rate;
4.) creates an unposted journal batch to adjust the account balance to the new revalued balance calculated using the Revaluation Rate. The offsetting account is an Unrealized Gain/Loss account specified when running the Revaluation process.
Donâ€™t be confused by the fact that the Revaluation process revalues transactions entered using Daily Rates with rates from the Period Rate table; the rate it is using is simply the "Daily Rate" on the last day of the month stored in the Period Rate Table.
The purposes of Revaluation is to "true-up" liability or asset accounts that may be materially understated or overstated at month-end using an exchange rate at month- end. This understatement or overstatement is caused by an unacceptable fluctuation in the exchange rate between the time the transaction was entered into and the period of interest for reporting, usually at a month-end. Revaluation is only necessary while the obligation remains unsettled (example ..the invoice is still unpaid or the receivable uncollected). The Realized Gain/Loss will be recorded at the time the obligation is settled.
Take a note revaluation can be done on any account, but typically,this is done for balance sheet accounts, whose balance is made up of open
transactions (ie. Accounts Payable, Accounts Receivable).
Revaluation is typically done for reporting purposes only; therefore, the journal entries produced as a result should be reversed in the following period.
Although Revaluation is intended to be used when transacting in currencies because of fluctuating Forex rate in the unstable economies, more and more company who is operating in Multi national environment , normally using this functionality by creating Journal Entries to reconcile their foreign subsidiary intercompany account.
The idea being that they are getting translated balances from their subsidiaries that do not balance to their inter company due to using different rates throughout the month to record inter company transactions.
Revaluation is used to revalue all these transaction at the same rate the foreign subsidiary used to translate their intercompany balance.
How to specifying PTD or YTD Revaluation
We can use the setting in the profile option 'GL: Income Statement Accounts Revaluation Rule'.
The following values are available:
PTD: Only PTD balances will be revalued for income statement accounts.
When you select PTD, the Revaluation program only revalues the PTD balances of your income statement accounts but continues to revalue YTD balances for balance sheet accounts.
YTD: Only YTD balances will be revalued for income statement accounts.
When you select YTD, then the revaluation program behaves as it did before, revaluing YTD balances for both your income statement and
balance sheet accounts.
Formula Used By Revaluation Calculation
REVALUATION ACCOUNT AMOUNT= ((begin_balance_dr + period_net_dr - begin_balance_cr -period_net_cr) * revaluation_rate)
(begin_balance_dr_beq + period_net_dr_beq - begin_balance_cr_beq - period_net_cr_beq)
REVALUATION ACCOUNT AMOUNT = ((period_net_dr - period_net_cr) * revaluation_rate))
(period_net_dr_beq - period_net_cr_beq)
Will explore some more in foreign currency functionality area , keep watching...Happy weekend :)