Translation Definitions: Implementation Activity

The following activity will walk you through the process of creating a translation definition.

Story

Suppose that in December 2022, SweetLife Fruits & Jams, which operates in the United States, became a subsidiary of a larger company that operates in Europe. Thus, the accountants of SweetLife need to prepare the company’s financial statements in the functional currency of the head company (that is, in the euro), so that these statements can be included in the consolidated statements of the head company.

Further suppose that SweetLife's chief accountant has decided that balances have to be translated based on the following rules:

  • Assets and liabilities should be translated by using the current exchange rate.
  • The Capital account should be translated by using the historical rate.
  • Revenues, expenses, gains, and losses should be translated by using the average exchange rate for the period that is used for translation.

Acting as a SweetLife accountant, you need to perform the needed configuration steps in the system and create a translation definition.

Configuration Overview

For the purposes of this activity, the following features have been enabled on the Enable/Disable Features (CS100000) form:

  • Standard Financials, which provides the standard financial functionality
  • Multibranch Support, which supports multiple branches in your instance of MYOB Advanced
  • Multicompany Support, which supports multiple companies within one tenant
  • Multicurrency Accounting, which enables multicurrency operations in the system

On the Chart of Accounts (GL202500) form, the 27001 (Translation Gain/Loss) account has been created.

On the Ledgers (GL201500) form, the ACTUAL ledger with the Actual type has been predefined.

Process Overview

In this activity, you will enable the needed feature on the Enable/Disable Features (CS100000) form. On the Currencies (CM202000) form, you will specify translation gain and loss accounts for USD (the base currency) and EUR (a foreign currency). On the Currency Rate Types (CM201000) form, you will define the rate types to be used in a translation definition, and create currency rates for EUR on the Currency Rates (CM301000) form. On the Ledgers (GL201500) form, you will create a ledger of the Reporting type to hold the results of translations. Finally, on the Translation Definition (CM203000) form, you will create a translation definition that will later be used for translating account balances.

System Preparation

To prepare the system for performing the steps of this activity, do the following:

  1. Launch the MYOB Advanced website, and sign in to a company with the U100 dataset preloaded. To sign in as an accountant, use the following credentials:
    • Username: johnson
    • Password: 123
  2. On the Company and Branch Selection menu, also on the top pane of the MYOB Advanced screen, make sure that the SweetLife Head Office and Wholesale Center branch is selected. If it is not selected, click the Company and Branch Selection menu button to view the list of branches that you have access to, and then click SweetLife Head Office and Wholesale Center.
  3. As a prerequisite activity, make sure that the multicurrency accounting functionality has been configured as described in Multicurrency Functionality: Implementation Activity and Configuration of Rate Types and Rates: To Configure Rates.

Step 1: Enabling the Needed Feature

To enable the Translation of Financial Statements feature, do the following:

  1. Open the Enable/Disable Features (CS100000) form.
  2. On the form toolbar, click Modify to make it possible to change the set of selected features.
  3. In the Advanced Financials group of features, select the Translation of Financial Statements check box.
  4. On the form toolbar, click Enable to enable the selected feature.

Step 2: Defining Currency Rate Types

To define the currency rate types for translations, do the following:

  1. Open the Currency Rate Types (CM201000) form.
  2. On the form toolbar, click Add Row and specify the following settings for the added row:
    • Rate Type ID: AVG
    • Description: Monthly Average Rate

    This currency rate type will keep the average rates calculated for the particular currencies for each month. This rate type will be used for translating the balances of income, expenses, and retained earnings.

  3. On the form toolbar, click Save to save your changes.
  4. Click Add Row and specify the following settings for another row:
    • Rate Type ID: HIST
    • Description: Historical Rate

    This currency rate type will keep the historical rates to be used for translating the balance of the Capital account.

  5. On the form toolbar, click Save to save your changes.

Step 3: Specifying Translation Gain and Loss Accounts for the Base Currency

To specify the translation gain and loss accounts for USD, which is the base currency, do the following:

  1. Open the Currencies (CM202000) form.
  2. In the Currency ID box, select USD.
  3. On the GL Accounts tab, specify the following settings:
    • Translation Gain Account: 27001 (Translation Gain/Loss)
    • Translation Loss Account: 27001 (Translation Gain/Loss)
  4. On the form toolbar, click Save to save your changes.

Step 4: Specifying Translation Gain and Loss Accounts for a Foreign Currency

To specify the translation gain and loss accounts for the EUR currency (which you configured in Multicurrency Functionality: Implementation Activity), do the following:

  1. While you are still on the Currencies (CM202000) form, in the Currency ID box, select EUR.
  2. On the GL Accounts tab, specify the following settings:
    • Translation Gain Account: 27001 (Translation Gain/Loss)
    • Translation Loss Account: 27001 (Translation Gain/Loss)
  3. On the form toolbar, click Save to save your changes.

Step 5: Specifying Currency Rates

To specify the currency rates for the translation definition, do the following:

  1. Open the Currency Rates (CM301000) form.
  2. In the To Currency box, select EUR.

    To be able to perform the translation, you need to define the currency rates from the base currency (USD) to the reporting currency (EUR) that will be effective on the date of translation.

    Note: Even if you had the EUR-to-USD rates of the needed rate types effective on the date of translation, the system would not use the reciprocal EUR-to-USD rate for performing translations from USD to EUR. You always have to define the currency rates from the base currency to reporting currency; otherwise, the translation will not be performed.
  3. In the Effective Date box, select 12/31/2022.
  4. On the Currency Rate Entry tab, click Add Row on the table toolbar, and in the added row, specify the following settings:
    • From Currency: USD
    • Currency Rate Type: SPOT
    • Currency Effective Date: 12/31/2022
    • Currency Rate: 0.8820
    • Mult./Div.: Multiply

    This rate is the SPOT rate on the date of translation for 12-2022.

  5. Click Add Row, and specify the following settings for the added row:
    • From Currency: USD
    • Currency Rate Type: AVG
    • Currency Effective Date: 12/31/2022
    • Currency Rate: 0.9000
    • Mult./Div.: Multiply

    This rate is the monthly average rate calculated for the 12-2022 financial period.

  6. Click Add Row, and specify the following settings for the added row:
    • From Currency: USD
    • Currency Rate Type: HIST
    • Currency Effective Date: 12/5/2022
    • Currency Rate: 0.9025
    • Mult./Div.: Multiply

    This rate is the historical rate on the date when SweetLife became a subsidiary of the European company.

  7. On the form toolbar, click Save to save your changes.
  8. On the Effective Currency Rates tab, review the rates. The created rates will be used for the translation of account balances in 12-2022.
  9. In the Effective Date box, specify 1/31/2023.
  10. On the Currency Rate Entry tab, click Add Row, and in the added row, specify the following settings:
    • From Currency: USD
    • Currency Rate Type: SPOT
    • Currency Effective Date: 1/31/2023
    • Currency Rate: 0.9077
    • Mult./Div.: Multiply

    This rate is the SPOT rate on the date of translation for 01-2023.

  11. Click Add Row, and specify the following settings for the added row:
    • From Currency: USD
    • Currency Rate Type: AVG
    • Currency Effective Date: 1/31/2023
    • Currency Rate: 0.9011
    • Mult./Div.: Multiply

    This rate is the monthly average rate calculated for the 01-2023 financial period.

  12. On the form toolbar, click Save to save your changes.
  13. On the Effective Currency Rates tab, review the rates. The created rates will be used for the translation of account balances in 01-2023.

Step 6: Creating a Reporting Ledger

To create a reporting ledger to keep the results of translations, do the following:

  1. Open the Ledgers (GL201500) form.
  2. On the form toolbar, click Add New Record, and in the Summary area, specify the following settings:
    • Ledger ID: EUROTRANS
    • Description: Reporting ledger for translations to EUR
    • Type: Reporting
    • Currency: EUR

      This is the currency to be used in the ledger. You are specifying EUR because you are going to use this ledger for keeping the result of translating account balances to EUR.

  3. On the Companies tab, click Add Row on the table toolbar, and select SWEETLIFE in the Company column.
  4. On the form toolbar, click Save to save your changes.

The created reporting ledger will be used for holding the results of the translations. Now you need to configure the translation definition, which is the set of rules used for the translation.

Step 7: Configuring the Translation Definition

To configure the translation definition, do the following:

  1. Open the Translation Definition (CM203000) form.
  2. In the Summary area, specify the following settings:
    • Translation ID: EUR
    • Source Ledger ID: ACTUAL

      The system copies the data to be translated from this ledger.

    • Destination Ledger ID: EUROTRANS

      The results of the translation will be stored in this ledger.

    • Branch: HEADOFFICE - SweetLife Head Office and Wholesale Center (inserted automatically)
    • Description: Translation to EUR
    • Active: Selected
  3. On the table toolbar, click Add Row, and in the added row, specify the following settings:
    • Account From: 10100
    • Account To: 27001
    • Translation Method: YTD Balance
    • Rate Type: SPOT

    The system will use the SPOT rate and the year-to-date (YTD) method (that is, YTD Balance) for translating assets and liabilities. When this method is selected, to get the translated balance of each of the specified accounts (assets and liabilities), the system converts the account balances at the end of the translation period by using the exchange rate of the selected type that is effective on the translation date.

  4. Click Add Row, and specify the following settings for the added row:
    • Account From: 30000
    • Account To: 30100
    • Translation Method: YTD Balance
    • Rate Type: HIST

    The system will use the historical rate and the year-to-date method (that is, YTD Balance) for translating the Capital account.

  5. Click Add Row, and specify the following settings for the added row:
    • Account From: 32000
    • Account To: 32000
    • Translation Method: PTD Balance
    • Rate Type: AVG

    The system will use the monthly average rate and the period-to-date (PTD) method (that is, PTD Balance) for translating the Retained Earnings account. When this method is selected, to get the translated period-to-date balance of each of the specified accounts (generally income and expenses), the system converts the PTD balance for the translation period by using the exchange rate of the selected type that is effective on the translation date. As a result, the account balance in the reporting ledger is the total of the translated PTD balances for every period of the financial year.

  6. Click Add Row, and specify the following settings for the added row:
    • Account From: 40000
    • Account To: 90000
    • Translation Method: PTD Balance
    • Rate Type: AVG

    The system will use the monthly average rate and the period-to-date method (that is, PTD Balance) for translating income and expense accounts.

    Note: The YTD Net Income account is not included in the translation definition, because its balance is calculated based on the translated balances of income and expense accounts.
  7. On the form toolbar, click Save to save the translation definition.