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Oracle Applications: Revaluation Overview and Functional Implications

Prepared by: John Koch Creation Date: February 3, 2003 Last Update: August 31, 2011

......................................... 3 HOW REVALUATION WORKS IN ORACLE GENERAL LEDGER ................................ 6 FUNCTIONAL IMPLICATIONS FOR USERS ..........................Contents INTRODUCTION .................... 3 TECHNICALITIES .............................................................................................................................. 3 TERMS OF REFERENCE: ....................................................................................................................................................................................................................................... 8 USEFUL REPORTS AND PROCESSES ................................................................................................................... 4 SUB-LEDGER IMPLICATIONS: PAYABLES .................................................. 8 ......................................

Revaluation: Often used interchangeably with remeasurement. Their usage in this document is based on the definitions described below: Functional Currency: Functional currency refers to the currency in which a set of books in Oracle is denominated. Any account may be revalued. In Oracle. Cross-Currency Payments: Cross-currency payments are payments made from a bank account in a currency other than the primary currency in which the bank account is denominated. South African Rand (ZAR) payments made from a bank account in which the balance is denominated in British Sterling (GBP). Terms of Reference: In order to discuss the concept of revaluation within the context of Oracle Applications. typically only balance sheet accounts whose balances consist of monetary assets or obligations. Also known as the primary currency or base currency of a set of books.Introduction Revaluation is a process that revalues accounts that have transactions denominated in a foreign currency. Revaluation records the change in value. Revaluation is performed on the account balance. there is no distinction made for reporting currency books or MRC’s in Oracle General Ledger. however. revaluation is a process that reviews the foreign currency balances for an account and converts them to the functional currency based on the month-end exchange rate. not the individual transactions. or open transactions such as accounts payable or accounts receivable are revalued. This is not to be confused with the accounting currency or functional currency as used in GAAP or FASB definitions and standards (specifically FAS 52 definitions of functional and reporting currency). For purposes of this document. Foreign Currency: Any currency other than the functional currency of a set of books. some key terminology must first be understood. How Revaluation Works in Oracle General Ledger . A journal entry is created to adjust the functional balance to the month-end converted amount (amount of Revaluation journal entry = difference between balance and the balance times the month-end rate). For example. This process is required under FAS 52 and IAS 21 in order to report financial statements that appropriately reflect the effect of fluctuations in exchange rates on assets and liabilities denominated in foreign currencies. The following terms and concepts may have different meanings within contexts outside of Oracle General Ledger. due to exchange rate fluctuations. of an asset or liability between the date of the transaction and the date of the financial statement.

by the amount of the unrealized gain/loss. The functional currency account balance is made up of all foreign currency transactions entered throughout the period and converted to functional currency amount at various exchange rates plus the balance of the transactions that originated in the functional currency. in the functional currency. it is important to note that revaluation is not performed on a transaction basis. monetary assets and liabilities denominated in foreign currencies are revalued at the month-end exchange rate.Oracle revaluation functionality is very comprehensive. The balance of each account is made up of a calculation of four columns: beginning balance DR. GL_BALANCES. The GL_BALANCES table contains a row for each account combination and currency that makes up the entire balance of the account for a given period. beginning balance CR. The Year-to-date balance displayed in the GL Account Inquiry screen is calculated via the following formula: Begin_Bal_DR + Period_Net_DR – Begin_Bal_CR – Period_Net_CR. Technicalities In the database. When the revaluation process is run. and period net CR. and multiplies it by the monthend rate to determine the month-end translated balance of the account and the amount of unrealized gain or loss due to exchange rate fluctuations between the date of the transaction and month end. While the net effect is essentially the same. data must be stored in a somewhat complex manner for use in the revaluation calculations. period net DR. increases or decreases the account balance. but in order to accurately track and account for balances to be revalued. The period net columns store account activity for the period and are used to calculate the period-to-date (PTD) balance displayed for each currency by the General Ledger Account Inquiry screen. The account balance is made up of individual transactions entered at various exchange rates throughout the period. In accordance with FAS 52 and similarly with corresponding IAS 21. Most companies does not revalue income statement items. When foreign currency transactions are entered in Oracle. To understand how the system works. the manner in which the system calculates revaluation is different at a balance level than if it were performed at a transaction level. account balances are stored in a single table. they are automatically converted to the functional currency at the exchange rate associated with the transaction and balances of foreign currency based transactions are actually stored in both the converted functional currency and the entered currency. but rather on an account balance basis. Oracle only revalues accounts that contain foreign currency balances and that are within the ranges defined in the General Ledger Revalue Balances form. The range of applicable balance sheet account numbers to be revalued are defined for each set of books in the ‘Revalue Balances’ screen in General Ledger. . The journal entry created by the revaluation process. The resulting unrealized foreign exchange gain/loss is booked to the income statement for that period. the system looks at the converted functional currency amount of the balance made up of foreign currency transactions.

Period_Net_CR_BEQ. In addition. . For PTD Converted balances. Begin_Bal_CR_BEQ. converted (functional currency). when a foreign currency transaction is entered and stored in the gl_balances table. amounts are stored in four additional columns: Begin_Bal_DR_BEQ. The ‘BEQ’ notation at the end of the column name represents ‘base currency equivalent’ which is the functional currency amount.’ The ‘R’ flags the account balance for revaluation. the formula is: Period_Net_DR_BEQ – Period_Net_CR_BEQ. the translated_flag is populated with ‘R. A journal entry is created for the difference. The formula for YTD Converted balance is: Begin_Bal_DR_BEQ + Period_Net_DR_BEQ – Begin_Bal_CR_BEQ – Period_Net_CR_BEQ. The formula for Revaluation looks at the account balance in the entered (foreign) currency. These amounts are represented in the GL Account Inquiry screen as ‘PTD Converted’ and ‘YTD Converted’ balances. Technically. multiplies it by the month-end exchange rate. and then compares it to the translated functional currency balance. the formula looks like this: ACCOUNT AMOUNT = ((Begin_balance_dr + period_net_dr – begin_balance_cr – period_net_cr) * month-end rate) This is the entered (foreign currency) balance multiplied by the month-end rate.For foreign currency balances. and Period_Net_CR_BEQ. LESS (begin_balance_dr_beq + period_net_dr_beq – begin_balance_cr_beq – period_net_cr_beq) This is the originally converted (functional currency) balance.

When the system accounts for the Invoice and the Payment. please consider the following example of a foreign currency invoice payment that takes place in a single. From a business perspective. To prevent such balances from being included in the revaluation calculations and thus impacting the accuracy of the revalued balances.The resulting journal entry updates only the translated functional currency balances – the BEQ columns. For example. it only holds GBP. Sub-ledger Implications: Payables Standard Payables functionality allows for multi-currency payments to be made out of a single bank account. This amount will be revalued against GBP at month-end. in a General Ledger GBP-denominated set of books. This is why the revaluation journals contain entered amounts of zero and converted amounts that represent the difference calculated above. this does not mean that the actual bank account holds all the currencies in which an invoice may be paid. Therefore. The actual bank account balance may hold only GBP which are then used to purchase EUR at a specified exchange rate in order to pay the draft issued by Accounts Payable. Manual journals in the functional currency amount to adjust the balance and record exchange rate gains or losses will not properly offset the revaluing foreign currency balances held in the translated functional currency of an account. To illustrate.5 GBP/EUR) DR Expense 100 EUR CR A/P 100 EUR Payment of Invoice (1. when accrual account balances are not relieved in the originating currency and exchange rate. GBP-denominated set of books. However. the corresponding journal entries are created: Entered Amt Converted Amt Invoice Entry (1.6 GBP/EUR) DR A/P 100 EUR DR FX Loss CR Cash 100 EUR 150 GBP 150 GBP 150 GBP 10 GBP 160 GBP The balance sheet now includes a credit of 100 EUR for the cash account. Likewise. a bank account whose base currency is defined as GBP can be used to create EUR denominated payments to pay EUR denominated invoices. The clearing of foreign currency payments in Cash Management creates the following entries to eliminate the foreign currency balances: Clearing of Payment (Assumes that the bank payment rate = payment rate in Oracle) . as stated earlier. this asset account should not have a EUR balance to revalue against GBP at month-end since it is actually denominated in GBP. the BEQ columns do not get zeroed out and the system continues to generate adjusting balance and exchange gain/loss entries (as illustrated in the formula above) based on those amounts in subsequent months even if the net primary (functional) currency balance of the account is zero. foreign currency payments must be cleared in Cash Management. the bank doesn’t actually hold EUR.

(Cross Currency EUR Journal) DR Cash 100 EUR 160 GBP CR Susp Accr 100 EUR (Cross Currency GBP Journal) DR Susp Accr 160 GBP CR Cash 160 GBP 160 GBP The system creates two separate journals with a source of ‘Payables’ and a category of ‘Cross Currency.’ Two journals are required because the journal to clear the foreign currency balance is in the foreign currency. The system creates these cross currency journals in both the primary book and related MRC book(s). while the journal to update the functional currency balance is in the functional currency. to clear foreign (non-functional) currency amounts for each affected set of books. .

For manually entered accruals. This applies primarily to accruals. Useful Reports and Processes There are several reports that may be useful in analyzing a particular account to for reconciliation purposes or to understand what activity contributes to its balance. Reconcile monetary asset and liability accounts in the currency in which they are denominated. always use the system-generated auto-reversals to reverse revaluation entries in the following period. Account Analysis . DON’T: Attempt to reverse system-generated revaluation journals with manual journal entries in the primary (functional) currency.Functional Implications for Users The complex technical example above has some relatively simple implications for users. Attempt to adjust the functional currency balance of cash accounts that contain foreign currency entries unless you have reconciled the account and know in which currency the adjustment must be made. These implications can be summarized with a few do’s and don’ts: DO: Always clear account balances in the same currency in which the original entry was booked. remember to back out the revaluation entries when reconciling. use single-book adjustments to record foreign exchange gains/losses to clear account balances in MRC books that legitimately result from foreign currency fluctuations between date of AR accrual and date of cash receipt. . This report can be run for a single period or a range of periods within a single fiscal year. The report displays journal entry lines and beginning and ending balances for the period (or range of periods) and GL account (or range of accounts) selected. If they are denominated in multiple currencies or in foreign currencies. If reversing revaluation journals. Use Cash Management to clear foreign currency payments and reconcile bank accounts. Any difference between invoice and payment should be booked to realized gain/loss.(180 Char): This report helps to trace GL account activity in the functional currency (or STAT) back to its original source.

.Key Parameters: Type: Depending upon the value chosen for the parameter ‘Type. This report can be used to review general ledger activity entered in a foreign currency and to reconcile revaluation journals. the report will display external reference information about the source transaction such as ‘Journal Import Created’ for transactions originating in the sub-ledgers or that are imported form external systems and ADI. Balances can be viewed on a Period-to-Date or Year-to-Date basis. Source Item: If this value is chosen. General Ledger – Foreign Currency: This report lists beginning and ending balances and all journal entry lines affecting each account balance in a foreign currency. the report will display information from the source transaction such as an invoice or check number (if the transaction is imported from Payables). Trial Balance – Foreign Currency Summary1: This report lists the beginning and ending foreign currency balances and period activity summarized by natural account segment in the selected currency. the report will display information related to the source transaction such as a vendor name. except that balances and activity are displayed by account combination rather than summarized by account segment. Line Item: If this value is chosen. Valid values include: Entry Item: If this value is chosen.’ the report will display information about the origin of the transaction. Both foreign and converted functional journal amounts and account balances are displayed. Account Analysis – Foreign Currency(180 Char): This report is identical to the Account Analysis report described above except that it helps to trace foreign currency activity within a specific range of periods and accounts. Trial Balance – Foreign Currency Detail: This report lists that same information as the Trial Balance – Foreign Currency Summary1 report.