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Adjust Exchange Rates - Bank Account - Post to Realised Gain/loss

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Posted on by Samantha73

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Hi All

When running Adjust exchange rates process (for revaluation of FC) , for debtors and creditors system uses UNREALISED gain/loss GL accounts but for the Bank Accounts it only post to REALISED gain/loss GL account. What is the logic behind this setting?

Thanks

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Dynamics 365 Business Central

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Gavin 2,508 on at

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Hi.

My take on this is you get unrealised gains or losses for customer and vendor ledgers because the transactions you are revaluing haven't yet been applied so the system is just suggesting a new value for the customer and vendor ledger entries. When you then pay or receive payment for a customer or vendor ledger entry, you know the exchange rate, and so specify this on the transaction so the system can calculate the actual realised gain or loss at this point (and reverse the unrealised)

With a bank account when you run the revaluation you are revaluing what the value of your foreign currency is at that point in time so its a realised gain or loss. It will never need to be recalculated so it posts a realised gain or loss.

Hope this helps

Thanks

Gavin

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Community Member on at

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Samantha,

When running the Adjust Exchange Rate function, monthly, for the Customer and Vendor you are correct that the FX differences are booked and posted to the Unrealized Gain/(Loss) GL Account. Bank Accounts that have a Foreign Currency different from that of the LCY of the Company, are booked to a Realized Gain/(Loss) since this is actual cash value that has truly changed based on the FX rate at month-end (Adjust Date).

Hope this helps.

Thanks,

Steve

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Rob F. 503 on at

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Our head of accounting, who is a CPA, recently pointed this out to me as well. She is quite certain that under IFRS guidance, the revaluation of foreign currency bank accounts should be recorded as unrealized gains/losses and not realized. Any other CPA's out there who could confirm this?

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Samantha73 3,253 on at

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Thanks for the replies. I cannot see the argument for bank accounts to be treated differently as we are theoretically revaluing the currency as opposed to actually selling FC at the bank

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Rob and Samantha,

From my perspective, and when Adjusting Customers, Vendors, or Bank Accounts that are recorded in a Foreign Currency, when closing the books, GAAP dictates that you adjust those accounts to reflect the currency equivalents due to fluctuation in the exchanged rates when you close the books. In the case of Bank Accounts, this is real cash and based on the LCY its value has changed and when reported on should reflect that days exchange rate.

In the long-run, you can exclude Bank Accounts when running the Adjust, if this is what the Accounting Team wants.

Thanks,

Steve

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Rob F. 503 on at

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Hi Steve,

I think we are all in agreement on your statement that the bank accounts in foreign currencies need to be revalued at month-end. The question is whether the gains/losses that result from the revalue should be posted to the realized or unrealized GL account(s). NAV/BC posts to realized gains/losses by design, and in the 12 years using the system I've never questioned that, but recently one of our staff pointed out that under GAAP/IFRS she's certain that it should be posted to unrealized gains/losses. If that is the case then it would suggest that NAV/BC is not GAAP/IFRS compliant, so I'm curious if anyone else has noticed this, and what they found out about it with regards to accounting rules.

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Rob,

Wholly agree. I am actually going to send an email into Microsoft to get their reply but in the meantime, here is IFRS on Foreign exchange element:

Statement of Judgements and Estimates

Gains and losses on financial instruments are due to changes in the price of the instrument (before foreign exchange gains and losses) and changes in foreign currency exchange rates (foreign exchange gains and losses). These are presented separately in the income statement. The method for allocating total gains and losses in LC to a security element and a foreign exchange rate revaluation element is described below. Different methods will result in different estimates. (NB)

i) Foreign exchange element

Unrealised gains or losses due to changes in foreign exchange rates are calculated based on the weighted average original cost of the holding in local currency and the change in the foreign currency exchange rate from the time of purchase until the balance sheet date. If the holding has been purchased in a previous period, gains and losses recognised in the income statement in previous periods are deducted to arrive at the gain or loss for the current period. For realised gains or losses, the weighted average historical costs and the foreign exchange rate on the date of sale is used for calculating realised gains or losses, and previously recognized unrealised gains or losses for the holding are reversed in the current period. (NB)

Thanks,

Steve

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LC-17111525-0 on at

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Hi Steve,

Wondering if there is any update from Microsoft on this topic?

We are getting some request to post bank account exchange adjustment to 'unrealized gain/loss' accounts.

Thank you,

Laura

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Nathan20 7 on at

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Hi Steve, has there been an update from Microsoft on this? I have noted the same issue in that bank revaluation at month end is posting as realised when it should be unrealised. Thanks, Nathan

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Quentin Turban 6 on at

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For a customer we had to do a customisation on this point:

- Indeed a gain or loss based on bank balances can be (and should be considered) as a realized gain or loss (with a profit and loss impact then) when closing the accounts

- However it should not have any impact on your operational result (it is purely financial) therefore it has to be isolated on specific GL accounts (still profit and loss) for financial gains and/or financial losses

It is a small customization but yes I guess Microsoft could do it directly (basically add addtionnal columns in the currencies table if you don't want the same accounts to be used for bank balances and for customers/vendors flows).

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