Hope all is well your way. It’s been almost a month i could not write here as i went busy with work. Now here is one which i recently worked on for a customer.
In the subsequent paragraphs i will explain how to perform the currency conversion for a subsidiary company operating on a foreign currency and also we will explore how to perform consolidation of this company with the parent company transactions.
Scenario: let us assume that the subsidiary company is SUB which operates in GBP (Britain Pounds) currency and the parent company PAR reports in USD(US Dollar) currency. We will perform currency conversion followed by consolidation for the subsidiary company.
The first task we have for this requirement is to perform the currency conversion for SUB company so that we can perform the consolidation then.
Steps for the currency conversion:
- Navigate to Administration > Company accounts form and create a new company account and name it as CUR , Consolidation I – Currency conversion.
- Select the company account.
- Navigate to GL > Setup > Exchange rates form.
- Create a new currency called USD(main currency of parent company) and give 100.00 as exchange rate for this with a blank date.
- Navigate to GL > Setup > Parameters form and Mark the Consolidated company account check box.
- Come back to the Exchange rates form and create the currency of the subsidiary company which is GBP is this case.
- In the exchange rates grid below , setup all the historical exchange rates.
- Click on the consolidate tab and setup the closing and average rate.
- Navigate to Basic > Setup > Company information and give suitable company information and setup the primary currency as USD under the Other tab.
- Create the chart of accounts in the consolidated company. For the currency conversion task , you may prefer to choose identical COA as of the subsidiary company and then set the consolidation conversion principle for each of the accounts. Select between Historical, Average and Closing.
- Select the Subsidiary company and go to chart of accounts form. For each of the accounts, setup the mapping for the chart of accounts for the consolidation company CUR.
- Now , navigate back to the CUR company and go to GL > Periodic > Consolidation > Consolidation Online.
- Select an account range if needed if not leave it blank, select the period for which you want to convert the transactions into USD, Mark the Consolidation account, Current check box.
- Click the Companies tab and Select SUB from the look-up. Give Share = 100 %.
- Click Ok button.
- This will convert all the transactions into USD and you can enquire the same at Inquiries > Consolidation.
Note : The setup for historical, average and closing rates are required as usually Income statement accounts will be converted on month average, balance sheet (non-equity) accounts on month closing and balance sheet (equity) accounts will be converted on historical rates under the US GAAP.
Steps for the Actual consolidation:
- Create a new company account called CON.
- Do the similar setup as done above. Note that the GBP setup is not needed here as we will just consolidate the transactions.
- Do the COA setup for this and map these accounts both is PAR and CUR companies by specifying these in the Consolidation account field.
- Run consolidation from Periodic > Consolidation Online and specify both companies PAR and CUR under companies tab.
- Go to consolidation inquiries and verify that the transactions are consolidated.
The scenario described above is just one of the cases for consolidation when the subsidiary company is in a foreign currency. The COA setup, exchange rate setup and account mapping will differ from customer to customer. The best decision is to be taken as per that.
Questions on this are most welcome.
Thanks, keep DAXING.🙂