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Consolidation , Foreign exchanges ( rates)

15 December 2008 274 views No Comment

Dear All , Kindly need your urgent help

We Have more than 10 companies in different countries and using different currencies :

1- our holding company send us every month end the conversion rate that we should use for each currency in order to be able to consolidate in 1 reporting currency.

2- Every month we report the PL ( Year to Date figures ) , and the balance with other schedules …

MY Question is : We should use the average rate of the PL and month end rate for Balance sheet ???? or we should use same rate for both????

2- Since we are reporting the PL as Year to Date figures , do we have to re-evaluate YTD figures this month on this month rate or only the month and we keep the previous month as the previous re-evaluation ????????

to be more clear my question : for the profit and loss : when we report PL January we evaluate and report , so when we report February as YTD do we re-evaluate YTD ( JAN + FRB ) as FEB Month end rate or we keep jan as jan rate already re-evaluated and we evaluate feb as feb rates?????

remember i’m asking on consolidation level

Thanks and regards

tony

Tony,

You have to use a month end rate for your Balance sheet and an average rate for you P&L.

If you are reporting the year-to-date figures, you have to revaluate your P&l with the average rate (In January: January, in February: average Jan+feb, in march: average of Jan+Feb+march)

For the balance sheet, you have to use the month end rate communicated by your holding. The balance sheet conversion amount you obtain is the sum of different components. Please find attached a spreadsheet with an example, showing the calculation of the revaluations.

I hope it will be helpful.

Best regards,

Eric

answere

1.you should use the average rate for the profit and loss account and month end rate for the balance sheet

2. you have to re-evaluate the YTD for pl.

I would confirmed these answers.

Sincerely your,

Stéphane Bellanger – France

Guys thanks for your help

Only i have 1 confusion : when we say Re-evalute YTD ,PL ( so average rate should be used for which period , average rate of the YTD period ?) or average rate of the month when i am reporting

example : we are in September 2008 – reporting YTD- PL- September ( should i use average rate of Sep??? , or average rate of JAN to DEC) ?

regards

Hi

The average rate covering the reporting period (if the PL is for 3 months means the avergae rate for that three months).

For the purpose of consolidation my view is that:

1. P & L Account; we should revaluate at the rate existing on the closing date, and

2. BS: similarly for BS too end period rate should be utilized

It would bring uniformity in conversion as regards both the financial statements as to depict profitability for the period ending on a particular date as well as state of affairs on that date.

Rgds.

Dear all

You must use a monthly weighted average rate.

Using this rate, which is weighted according to sales, gross margin, … your cumulated sales, costs and/ or gross margin will be less impacted by the difference.

Kind regards

Michel

Conversion of cross currency transactions is basically to represent in real and absolute terms of the currency in which you are converting rather than for weighing which will give a better impact on your profitabilities.

So, the reply given by Mr. Ashutosh two threads below is correct.

Good Luck