Weighted Average Exchange Rate

The application uses weighted average exchange rates for the following scenarios:

  • Conversion to depreciation area currencies for depreciation posts.
  • To post negative ROU delta amounts following a lease modification for Decrease Asset Value or Decrease Lease Term, or a reassessment to add a Reduction term.
  • Conversion to company or group currencies for an impairment loss or gain.

The following formula is used to calculate the weighted average exchange rate between any two currencies. It is explained using a conversion from contract currency to company currency.

Weighted average rate: ((RB * B) + (RA* A))/(RB + RA)

Where:

  • RB: Remaining ROU asset value in contract currency before the lease event. This is the net book value of the asset.
  • B: Exchange rate used to convert the RB amount from contract to company currency
  • RA: Delta ROU amount generated in the contract currency because of lease event
  • A: Exchange rate used to convert the delta ROU amount RA from contract to company currency

For example:

  • Contract currency = CAD
  • Company Currency = USD
  • Lease length = 12 periods
  • Exchange rate from CAD to USD at lease inception is (B) = 0.7
  • Net book value of an asset in period 5 in CAD (RB) = 100
  • There is a lease event which generates positive ROU delta amount in period 6 in CAD (RA) = 20
  • There are no lease events in this contract until the period 5
  • Spot exchange rate from CAD to USD in period 6 (A) = 0.5

Therefore, the new weighted average rate after this lease event in period 6 will be:

((100*0.7) + (20*0.5))/(100+20) = 0.6667

Lease Modification and Reassessment Events

When there is a negative ROU delta amount following a lease modification for Decrease Asset Value or Decrease Lease Term, or a reassessment to add a Reduction term, the application uses a weighted average exchange rate. If the amount is positive, the application uses the spot rate to convert the amount to company and group currencies.

Lease events generating a negative delta ROU amount do not change the weighted average rate in the period of the lease event. Therefore, the weighted average rate before and after the decrease event remains the same from inception until the end of lease. On the other hand, lease events generating a positive delta ROU amount may change the weighted average rate. If there was a lease event that increased the ROU after inception and then a decrease ROU event was performed, the rate for the decrease event period would be the new weighted average rate from the increased event period, and not the inception weighted average rate.

If the spot rate in the period of the lease event is different from the rate at inception, then the new weighted average rate after the lease event will be different from the existing weighted average rate before the event.

Note that if SAP requires that the conversion from company to group currency be performed by SAP, the application will show the amount returned by SAP, as well as the spot rate that was used. If SAP allows the application to send group currency amounts, or if the system is operating in standalone mode, the application uses the weighted average rate for the company to group currency conversion.

Note: The Liability adjustment documents for both a positive and negative delta ROU event will always use the spot rate and the changes mentioned above are only applicable for the asset adjustment documents of the events.

Depreciation Postings

The application uses a weighted average exchange rate to convert the depreciation amount from contract currency to any other depreciation area currency. The weighted average rate calculation is displayed in the Document pop-up window for posted depreciation documents. The application uses the same weighted average rate for every period, until an event occurs. Note that if SAP requires that the conversion from company to group currency be performed by SAP, the application will show the amount returned by SAP, as well as the spot rate that was used. If SAP allows the application to send group currency amounts, or if the system is operating in standalone mode, the application uses the weighted average rate for the company to group currency conversion.

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