Calculating the currency translation difference

A, D, and E are development schedules. They require complex currency translation logic because individual movements are usually calculated differently than the closing balance, and this leads to a currency translation difference. Each movement can have a different parametrization for the currency calculation. For example, individual movements and the closing balance are calculated in this way:

  • Opening balance of the gross fixed assets schedule: 200 USD
  • Increase during a year: 300 USD
  • Decrease during a year: 150 USD
  • Rate for the opening balance: 1.25 (account rate from the base period)
  • YTD average rate that is used to calculate increase and decrease: 1.33
  • Closing rate of the period that is used for the closing balance: 1.41
Opening balance: 200/1.25 = 160 EUR
Increase: 300/1.33 = 225.56 EUR
Decrease: -150/1.33 = -112.78 EUR
Closing balance: 350/1.41 = 248.23 EUR

The individual movements result in a closing balance of 272.78 EUR, which is different from the actual calculated closing balance (248.23 EUR). Therefore, a currency translation difference must be calculated to bridge the gap between the individual movements and the closing balance in the group currency (EUR). To display currency translation differences correctly, each movement is compared with the value that would have been, had it been calculated using the rate of the closing balance. This formula is used:

Value in the local currency/rate of the closing balance – value calculated in the group currency

Based on that formula, the individual movements are calculated in this way:

Opening balance: 200/1.41 – 160 = -18.16 EUR
Increase: 300/1.41 – 225.56 = -12.79 EUR
Decrease: -150/1.41 – -112.78 = 6.4 EUR

The total of the individual results is -24.55 EUR, which matches the difference between the actual closing balance and the sum of the individual movements. The value of -24.55 is written to the currency translation difference element for the gross fixed assets schedule.