7.10.1 Definition of Currency Methods
The effect of currency fluctuations on balance sheet accounts can be modeled in Oracle ALM in one of three ways. In the Product Characteristics rule, the user selects one of the following currency accounting methods for each Product/Currency combination. If no method is specified, the Temporal method is used:
Table 7-20 Currency Methods
| Method | Description |
|---|---|
| Temporal Method | Currency gains/losses on the outstanding balance are reflected in the income statement each reporting period. Because currency effects have already been reflected in the income statement, no additional translation adjustment accounts are necessary. |
| Current Rate Method | The reported balance at the end of the period reflects the value at the current exchange rate. An Accumulated Translation adjustment account is maintained, which stores the accumulated unrealized gains/losses on the principal as a contra-equity account on the balance sheet. When principal payments are made, the realized gain/loss is recognized in the income statement and the contra-equity account is adjusted appropriately. |
| Historical Basis Method | Balances are carried at the historical cost. The effect of exchange rate fluctuation on cash flows is recorded as a realized gain/loss in the income statement when received. |
For auditing purposes, the currency financial elements are retained steely for each local currency. Realized and unrealized gain/loss entries are recorded in a series of financial elements, as described in the following table.
The term used in this table:
- Current Exchange Rate: Rate in effect for that particular modeling bucket.
- Previous Exchange Rate: Rate in effect for the previous modeling bucket.
- Original Exchange Rate: Rate in effect at the origination of the instrument.
Table 7-21 Currency Financial Elements
| Code | Description | Methods | Purpose | Calculation |
|---|---|---|---|---|
| 950 | Accumulated Translation Amount | Current Rate | Accumulated effect of unrealized currency gain/loss on balances at the end of each period. | (FE100 Ending Balance) * [(1/Current Exchange Rate) – ( 1/Original Exchange Rate)] |
| 465 | Total Currency Gain/Loss (Principal) | Temporal | Effect of exchange rate fluctuation on the existing balance over the current period. | (FE60 Beginning Balance) * [(1/Current Exchange Rate) - (1/Previous Exchange Rate)] |
| 475 | Realized Currency Gain/Loss (Principal) | Current Rate and Historical Basis | Actual change in value of the principal cash flow due to exchange rate fluctuation. | (FE210,212 Total Runoff) * [(1/Current Exchange Rate) -(1/Original Exchange Rate)] |
| 485, 486 or 487 | Realized Currency Gain/Loss (Interest Net, Gross, or Transfer Rate) | All Methods | Actual change in value of the interest cash flow due to exchange rate fluctuation. | Interest Cash Flow * [(1/Current Exchange Rate) -(1/Original Exchange Rate)] |
For a complete listing of Financial Elements used for cash flow results, see the Financial Element Calculations.