Recording of Currency Translation Differences

Use

You can record currency translation differencesthat arise in the elimination of interunit profit/loss in transferred inventory when different exchange rate indicators are used.

Features

How Currency Translation Differences Occur
When the required data is read from additional financial data:

Currency translation differences can result for the following reasons:

  • You record goods supply data grouped by pairs of consolidation units and grouped by product group. The system translates this additional financial data into group currency as part of the calculation of IU profit/loss. The function uses the exchange rate indicator defined in the task and determines the exchange rate for the inventory item assigned to the product group.

  • Interunit profit/loss is therefore calculated using the exchange rate for inventory accounts. The entry for the elimination of IU profit/loss is posted to an inventory item and its offsetting item (which is typically an income statement item).

  • Income statement items are often translated using different exchange rates than those for balance sheet items, for example, with average rates. This means that the group currency value of the revenues or expenses to be eliminated can differ from the calculated IU profit/loss. This discrepancy is a translation difference.

  • Translation differences can occur in interunit profit/loss in inventory because the relevant additional financial data is translated twice: once using the exchange rate indicator defined in the task, and once using the comparative exchange rate indicator (which is also defined in the task).

When the inventory data is read from the totals database:

When the inventory data is read from the totals database, currency translation differences are incurred in the same way as when the data is read from additional financial data. However, the reference translation with the exchange rate indicator takes place in the currency translation task, which is executed prior to the elimination of IU profit/loss in transferred inventory (IPI). As a result, the totals data already contains the amounts in group currency when the IPI task is executed. In this case, the system uses the comparative exchange rate indicator from the IPI task to calculate the currency translation differences from the elimination of interunit profit/loss.

Posting of Currency Translation Differences

The system automatically posts translation differences that occur for inventory items to the differential item you specify beforehand. This should be the same currency translation item you specified in Customizing for currency translation.

Temporal translation differences , which result from changes in exchange rates between two different closing dates, influence interunit profit/loss. The system posts these differences with a summarized amount – that is, the system does not distinguish between the “true profit or loss” and the exchange rate differences between two closing dates.

Activities

To record currency translation differences, do the following:

  • If inventory data is read from the totals database, do the usual Customizing for Currency Translation . Make sure that the inventory data is appropriately translated. If necessary, create a separate step for inventory data in the currency translation method.

  • Specify the following for the task for elimination of interunit profit/loss in transferred inventory (IPI), regardless of where the values are located:

    • Exchange rate indicator

    • Comparative exchange rate indicator

  • In the settings for the IPI posting items, specify an item for currency translation differences for each single selection.