Calculations with historical rates

Calculations with H and HI rate types

For all accounts, except the account for retained earnings, the mass adoption function uses the base period rates for the value that already existed for that period. Then all differences in the local currency between the current period and the base period that has the current closing rate are calculated.

Example:

In the base period 01. 2020, the value of the account share capital for an American entity was 1,000 USD in the local currency. The used rate was 1.5, which results into a value of 666.67 EUR.

In period 02.2020, the capital increased by 500. The closing rate of 02.2020 was 2.0. To determine the correct value in EUR, these calculations are done:

1,000/1.5 = 666.67
500/2.0 = 250.00
Value in EUR: 666.67 + 250.00 = 916.67
Weighted average historical rate: 1,500/916.67 = 1.6363

The mass adoption function calculates a new historical rate of 1.6363. This rate is used in the currency translation from 1,500 USD to 916.67 EUR.

Special calculations with H and HI rate types

For retained earnings, the mass adoption function takes into consideration that the previous year's profit or loss is added to the previous year's retained earnings. The previous year's profit or loss must be converted into the group currency with the same rate as was used in the previous period to determine the group value of the Profit and Loss result.

Example:

In the base period 12.2019, the value of the retained earnings account for an American entity was 1,000 USD in the local currency. The used rate was 0.6, which results into a value of 1,666.67 EUR. The profit of the period was 500 USD. The overall rate that was used for the Profit and Loss was 0.65 and resulted in the value of 769.23 EUR. The mass adoption function calculates the current period rate for retained earnings in this way:

Sum local value/Sum group value = Rate for retained earnings for current year

1,500/2,435.90 = 0.615789

The calculation is based the assumption that the whole amount of the previous year's profit and loss is recognized in the current year's retained earnings. However, the mass adoption function does not include any dividends or other increases or decreases of the account.

The calculation contains these steps:

1. Current local value - (Previous year sum of retained earnings + profit and loss local value) = Current period change

   The closing rate of the period is used for the current period change.

2. (Previous year sum of retained earnings + previous year profit local value) + Current period change local value/(Previous year sum of retained earnings group value + previous year profit group value) + Current period change group value 

For example:

1,200 – 1,500 = -300
-300/0.7 = -428.57

Sum Local Value/Sum Group Value = Rate for retained earnings for current year

1,200/2,007.33 = 0.59781

In the case of HI rate type calculation, periodical changes in intercompany accounts are considered.

Example:

In the base period 01.2020, the account that was paid in capital to an American entity has these values:

• Intercompany A: 2,000 USD in balance and the rate 1.2 result in 1,666.67 EUR.
• Intercompany B: 3,000 USD in balance and the rate 1.3 result in 2,307.69 EUR.
• Intercompany C: 4,000 USD in balance and the rate 1.4 result in 2,857.14 EUR.

In the base period 01.2020, the total balance for the account is 9,000 USD and 6,831.50 EUR in the group currency

In the current period 02.2020, with the use of the closing rate (F) 2.0, the values of the intercompany accounts have increased in this way:

• Intercompany A: Increase by 400 USD in balance results in 200 EUR.
• Intercompany B: Increase by 2,000 USD in balance results in 1,000 EUR.
• Intercompany C: Increase by 5,000 USD in balance results in 2,500 EUR.

The total increase in the current period 02.2020 is 3,700 EUR. The value of the base period 01.2020 is 6,831.50 EUR. This results in the total value of 10,531.50 EUR.

Calculations with HS and HD rate types

The HS and HD rate types must be specified for each relevant movement for each period.

The total historical rate for the closing balance is calculated based on the individual movement calculation.

In the mass adoption function, selected exchange rate types are used to recalculate the balance in the group currencies for the relevant schedules.

These rates are available:

• F: Closing rate
• A: Average rate
• N: No translation
• WA: Weighted Average

In combination with the rate, you must select the calculation period. These calculation periods are available:

• Current period: Uses the rate of the current period.
• Base period: Uses the rate from the base period that is defined in Business Modeling. The base period is usually period 12 of the previous year.

For the schedule detail opening balance, the rate is adopted from the base period and this setting cannot be changed. This is because the opening balance must match the closing balance of the previous base period. For all other relevant movements, either the closing rate or average rate is used together with the current period. For example, if an account closing balance is 200 USD and the EUR/USD rate is 1.2 in the base period, then the closing balance of 200 USD is adopted to the current period with the same 1.2 rate and the same balance in the group currency, which is 181.80 EUR.

You can modify all rates that have been copied by using the mass adoption function. For example, if a specific daily rate is required.

Calculations with the weighted average rate are different. If you select weighted average, the closing rate (F) of the current period is used to calculate periodical changes and is summed up into the base period value in a group currency.

Example:

In the base period 01. 2020, the value of increases in share capital for an American entity was 1,000 USD in the local currency. The used rate was 1.5, which results in a value of 666.67 EUR.

In period 02.2020, the capital increased by 500. The closing rate of 02.2020 was 2.0. To determine the correct value in EUR, this calculation is done:

1,000/1.5 = 666.67
500/2.0 = 250.00
Value in EUR: 666.67 + 250.00 = 916.67
Weighted average historical rate: 1,500/916.67 = 1.6363

The mass adoption function calculates a new historical rate of 1.6363. This rate is used in the currency translation from 1,500 USD to 916.67 EUR.