Foreign Currency Gain or Loss on Contract Asset
This adjustment records the foreign currency gain or loss for the recognized but unbilled portion of foreign currency transactions (the contract asset). The adjustment is created only when the accounting preference Exclude Contract Asset from FX Reclassification box is clear. If the box is checked, deferred revenue balances may remain for foreign currency transactions after all revenue is recognized.
On the Related Records subtab of the revenue arrangement, the journal entry for this adjustment is called Foreign Currency Gain Loss on Contract Asset.
The liability effective billing rate and revaluation rate are used to calculated the foreign currency gain or loss on contract asset.
Liability Effective Billing Rate – Equals the effective cumulative billing amount (base currency) divided by the effective cumulative billing amount (transaction currency) for liability elements only. For more information, see Deferred Revenue Reclassification Report.
Revaluation Rate – Equals the effective billing exchange rate or the effective revenue recognition exchange rate. If the absolute value of the total foreign currency amount billed is greater than the total foreign currency amount recognized, then we use the effective billing exchange rate. If the absolute value of the total foreign currency amount billed is less than the total foreign currency amount recognized, then we use the effective revenue recognition exchange rate. For more information, see Foreign Currency Adjustment.
The gain or loss is calculated at the element level as follows:
Foreign Currency Gain (Loss) =
Unbilled Receivable (transaction currency) x (Period End Exchange Rate – Revaluation Rate)
+ Total Contract Liability for Arrangement (transaction currency) x (Net Amount Ratio) x (Liability Effective Billing Rate – Revaluation Rate)
The effective revenue recognition exchange rate equals the cumulative effective revenue recognition amount (base currency) divided by the cumulative revenue recognition amount (transaction currency).
The cumulative effective revenue recognition amount (base currency) includes prior foreign currency gain or loss on contract assets but not foreign currency adjustments for invoiced and recognized amounts.
For an explanation of the net amount ratio, see Net Amount Ratio.
The general ledger impact for the adjustment for foreign currency gain loss on contract asset is the same as for the foreign currency adjustment:
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For a gain: Debit deferred revenue and credit revenue.
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For a loss: Debit revenue and credit deferred revenue.
For examples, see Example of Foreign Currency Gain or Loss on Contract Assets.