SAP Note 23840 - Translate retained earnings w. hist.curr.

Symptom:

How is the currency translation method to be set up if the retained earnings are to be translated using the historical currency ?

Cause and prerequisites

Missing documentation

Solution
Procedure A -----------

This procedure can ONLY be applied if the FS item profit/loss carried forward in the current year in local currency (LC) AND reporting currency (RC) states exactly the correct values of the retained earnings of the previous year. If one of the two conditions are not met, procedure B must be applied.

1. Changes in equity table (T871)
Item Year LC Ex.rate RC
--------------------------------------
Retained earn. 1994 1000 2.0 2000
1995 1000 1.5 1500

Consequently, the balance carried forward item in the current year has the value
1000- in LC and in 2000- in RC.

2. Translation method contains the following translation entries
(maintenance by means of transaction GC31, storage in T884):
Item LC Transl. 1995 RC
---------------------------------------------------------------------
BALANCE SHEET
Fixed assets 2000 S-rate = 1.5 3000
Retained earnings 2000- T871 3500- (Sel.item BG)
Curr.transl.diff. 0 500+

INCOME STATEMENT
Sales 10000- D rate = 1.8 18000-
Expenses 9000 D rate = 1.8 16200+
Curr.trans.diff P+L 0 300+
-------------------------------------------------
Net income for yr 1000- 1500- (Totals item)
Bal. carried forward 1000- no new transl. 2000-
Retained earnings 2000+ S rate = 1.5 3000 (Sel.item ERG)
500 (from bal.)

A translation set with precisely that carry-forward item exists. It is not translated again. The currency translation difference is posted to the FS item ERG. This then automatically has its correct historical value which, if at all, deviates from the value of the BG item on the balance sheet due to roundoff.

3. Roundings between balance sheet and P+L
Example: Amortization in the P+L equals the total of the amortizations on the balance sheet. Differential item in the balance sheet or P+L.

4. Rounding balance sheet
Summary of all balance sheet items in a set and posting of the difference to a rounding difference item on the balance sheet.

5. Rounding P+L
Summary of all P&L account items in a set and posting of the difference to a rounding difference item in the P+L. This can, but must not lie "above" the annual net profit.


Procedure B -----------

Procedure is ALWAYS applicable. In particular, it is needed when no historical values for the profit carried forward are available yet due to a first consolidation in FI-LC.

1. Changes in equity table (T871)
- similar to procedure A

2. The translation method contains the following translation entries
(maintenance by means of transaction GC31, storage in T884):
Item LC Transl. 1995 RC
---------------------------------------------------------------------
BALANCE SHEET
Fixed assets 2000 S rate = 1.5 3000
Retained earnings 2000- T871 3500- (Sel. item BG)
Curr.transl.diff. 0 500+

INCOME STATEMENT
Sales 10000- D rate = 1.8 18000-
Expenses 9000 D rate = 1.8 16200+
Curr.trans.diff P+L 0 300+
-------------------------------------------------
Net income for yr 1000- 1500- (Totals item)
Bla. carried forward 1000- S-Kurs = 1.5 1500-
Retained earnings 2000+ S-Kurs = 1.5 3000 (Sel.item ERG)

Contrary to procedure A, the balance carried forward is translated by means of the spot exchange rate.

3. Roundings between balance sheet and P+L
- similar to procedure A

4. Rounding balance sheet
- similar to procedure A

5. Rounding P+L
- similar to procedure A

6. Rounding retained earnings:
The retained earnings on the balance sheet (BG) and in the P+L (ERG) must always correspond in local and reporting currency. At first, this is not the case in the described example, that is, after processing the translation entries of step 2.

By means of a rounding, the difference between both FS items is added to the retained earnings in the P+L. A set is created for this, which includes both FS items and supports the FS item ERG as differential item.

7. Rounding P+L for correct profit carried forward
After processing the translation entries (step 2), the FS item Profit carried forward still displays an incorrect value, namely 1500- instead of historically correct 2000- in RC.

On the other hand, a balance across all P+L account items was created by means of rounding off the retained earnings in step 6.

Both aspects are now cleared by repeating the rounding of the P+L (all P+L and appropriations of net income items including ERG) with the profit carried forward (!) as differential item.

Rounding differences of 500 will now appear in the audit trail for translation; however, these are not roundings in the actual sense but a temporary measure.