Appendix: Parallel Currency Example Scenarios

This appendix describes use cases and exemplars of parallel currency deployment and clarifies key necessary pre-conditions such as ensuring that exchange rates between document to local and local to group currencies are symmetric. Symmetrically configured exchange rates will ensure that group currency amounts exactly match document currency amounts if both are in the same currency (where the local currency may be different).

Terminology:

  • Document currency, transaction currency, contract currency are synonymous
  • Company currency, local currency, functional currency are synonymous

Configuration: 

Make sure parallel currency is enabled in both Nakisa Lease Administration and SAP ERP.

Once enabled the application will be able to translate between contract currency, local currency and group currencies.

Translation rates for asset activation are fetched from SAP backend in case of connected mode and from local Nakisa Lease Administration table for exchange rates in the case of standalone mode.

Translation rates for rent postings, accruals, and charges are fetched from the SAP backend in the case of connected mode, and from local Nakisa Lease Administration table for exchange rates in case of standalone mode.

Asset depreciation postings use historical rates stored during asset capitalization postings.

Note: For information about how parallel currencies re handled in Asset Accounting in SAP, refer to SAP Note 1065932 – “Currencies in Asset Accounting”.

Scenario 1: Operations (contracts) in currency other than company currency

The company is headquartered in the US and operates within the US. It is possible that some contracts may be in foreign currency which is translated into company currency. There is no need for group currency to be used as the company is localized within US and does not have non-US branches.

Example: Company A based in the US has taken on a lease whereby the payments are in EUR.

Document (Transaction) Currency Local (Company) Currency Group Currency

EUR

USD

N/A

  • As the company does not have separate operations or branches, there is a single company code, named US01.
  • Company A’s primary economic environment in which the entity operates is in the US and therefore SAP CC US01’s local currency is set to USD.
  • As the local currency is the same currency used for presentation, setup of group currency is not required
  • Alternatively, if group currency is set up in SAP for this scenario it must be equal to the local currency with an exchange rate of 1.0

The postings will therefore be entered in EUR (document currency) whereby the system would then translate the amounts to USD (local currency). This enables the company to prepare its financial statements in USD.

Translation from document currency to local currency needs be configured in SAP using the M-rate (Currency Type = 10, Exchange Rate Type = “M”, Source Currency = 1). Nakisa Lease Administration will use this exchange rate as needed to translate between document currency and local currency.

Although not required, if group currency is enabled it would be USD (same as local currency). Translation from local currency to group currency would need to be configured in SAP using the M-rate (Currency Type = 30, Exchange Rate Type = “M”, Source Currency = 2). The exchange rate would need to be appropriately set to 1.0 for conversion between local and group currency.

Scenario 2: A company with a branch that prepares its financial statements in a currency other than the currency of the parent company (US-Based Parent Company)

The company is headquartered in the US and operates globally. There are two major branches of the company which operate in two different currencies (US & UK). Contracts may be in various foreign currencies which are translated into local currency. Use of group currency is required to be used as the company has branches which operate in distinct currencies.

Example: Parent Company AA prepares its consolidated reports in USD. In addition to Company AA’s domestic operations, it has a branch in UK that is required to report for statutory purposes in GBP.

Document (Transaction) Currency Local (Company) Currency Group Currency

EUR

USD (for US company code)

USD

EUR

GBP (for UK company code)

USD

  • The company would set up two SAP company codes; one for the domestic activities (US01) and the other for the international activities in UK (UK01).
  • The local currency for US01 is set to USD whereas the local currency for UK01 is set to GBP.
  • At a consolidation level, the Company AA must report in USD and therefore the group currency is set to USD.

The postings executed under UK01 are first translated to the branch’s local currency GBP, then to group currency USD. As a result, the parent company can effectively prepare its financial statements at a branch level in GBP and at a consolidation level in USD.

Translation from document currency to local currency needs be configured in SAP using the M-rate (Currency Type = 10, Exchange Rate Type = “M”, Source Currency = 1). Nakisa Lease Administration will use this exchange rate as needed to translate between document currency and local currency.

Translation from local currency to group currency needs be configured in SAP using the M-rate (Currency Type = 30, Exchange Rate Type = “M”, Source Currency = 2). Nakisa Lease Administration will use this exchange rate as needed to translate between local currency and group currency.

This configuration must be symmetric so that a translation from contract currency of USD to local currency of GBP to group currency of USD yields matching numbers for the document currency amount and the group currency amount.

Scenario 3: Combination of 1 & 2

Parent Company AA prepares its consolidated reports in USD. In addition to Company AA’s domestic operations, it has a branch in UK that is required to report for statutory purposes in GBP. For domestic operations, Parent Company AA will assign USD as the local currency of these domestic company codes in US. For International Operations, for example, the operation in UK, Parent Company AA will assign GBP as the local currency and USD as the group currency of that UK based corporation.

Scenario 4: A company with a branch that prepares its financial statements in a currency other than the currency of the parent company (Non-US Based Parent Company)

The company is headquartered in Germany and operates globally. There are three major branches of the company that operate in three different currencies (Germany, US & UK). Contracts may be in various foreign currencies which are translated into local currency. Use of group currency is required to be used as the company has branches that operate in distinct currencies.

Example: Parent Company AA prepares its consolidated reports in EUR. In addition to Company AA’s domestic operations, it has a branch in UK that is required to report for statutory purposes in GBP, and a branch in the US that is required to report for statutory purposes in USD.

Document (Transaction) Currency Local (Company) Currency Group Currency
USD EUR (for German company code) EUR

EUR

EUR (for German company code)

EUR

JPY

USD (for US company code)

EUR

EUR

GBP (for UK company code)

EUR

  • The company would set up 3 SAP company codes; 1 for the domestic activities (DE01) and the others for the international activities in UK (UK01), and US (US01)
  • The local currency for DE01 is set to EUR whereas the local currency for UK01 is set to GBP, the local currency for US01 is set to USD.
  • At a consolidation level, the Company AA must report in EUR and therefore the group currency is set to EUR.

The postings executed under UK01 are first translated to the branch’s local currency GBP, then to group currency EUR. As a result, the parent company can effectively prepare its financial statements at a branch level in GBP and at a consolidation level in EUR. Similar logic exists for the US branch.

Translation from document currency to local currency needs be configured in SAP using the M-rate (Currency Type = 10, Exchange Rate Type = “M”, Source Currency = 1). The application will use this exchange rate as needed to translate between document currency and local currency.

Translation from local currency to group currency needs be configured in SAP using the M-rate (Currency Type = 30, Exchange Rate Type = “M”, Source Currency = 2). The application will use this exchange rate as needed to translate between local currency and group currency.

This configuration must be symmetric so that a translation from contract currency of EUR to local currency of GBP to group currency of EUR yields matching numbers for the document currency amount and the group currency amount.

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