MNM Method
Most accounts in the income statement are converted at the average rate. However, some accounts in the income statement, related to non-monetary accounts in the balance sheet, are converted using historical rates. The net income for the period is calculated as a balance item in the balance sheet and is copied to the income statement. The currency translation difference is calculated as a balance item in the income statement.
These are the basic guidelines for currency translation using the MNM method, but other variations can also apply.
Shareholdings
The value of shareholdings in the converted currency is loaded from the register of historical rates.
For more information, see Enter Currency and Historical Rates.
Fixed Assets and Untaxed Reserves
By defining the accounts with the currency translation code I, opening balance values are loaded in the specifications of fixed assets, and untaxed reserves from the previous year’s closing balance values. Before running the currency translation the first time, enter data on the closing balances in both the local and converted currency, on the accounts to which currency translation code I refers. Alternatively, enter no data for the previous year, but just the previous year’s closing rate in the currency register, to be used instead.
Other accounts in the specification are converted based on the currency translation codes specified. Summation accounts will be calculated, and then the converted values will be copied to the accounts in the income statement and the balance sheet. The values will only be copied if the account in the income statement and/or in the balance sheet has been defined with the currency translation codes U, V, X or Z. The reason for copying converted values from specification accounts to accounts in the income statement and/or the balance sheet is to avoid rounding differences that would otherwise arise.
For more information about currency translation codes U, V, X or Z, see Currency Translation Codes for Accounts.
Equity with Specification
By defining the accounts with the currency translation code I, the opening balance values are loaded in the equity specifications from the previous year's closing balance values. Before running the currency translation the first time, enter data on the closing balances for the equity from the previous year. Enter it in both the local and converted currency and on the accounts currency translation code I refers to. Alternatively, do not enter any data for the previous year, but just the previous year’s closing rate in the currency register, to be used instead.
Other accounts in the specification are converted based on the currency translation codes specified. Summation accounts will be calculated and then the converted values are copied to the equity accounts in the balance sheet. The values will only be copied if the account in the balance sheet has been defined with currency translation code U, V, X or Z. The reason for copying converted values from specification accounts to accounts in the balance sheet is to avoid rounding differences that would otherwise arise.
The net income for the period is calculated as a balance item in the balance sheet and is copied to the income statement. The final currency translation difference is calculated as a balance item in the income statement and booked to the account defined in the general configuration.
For more information about currency translation codes U, V, X or Z, see Currency Translation Codes for Accounts.
Equity with Register of Historical Rates
The acquired equity share is entered in the register of historical rates at the currency rate, which applied on the date of purchase. For each new period and actuality, new data must be entered or copied from the previous period and actuality. At the beginning of each year, move the closing balance values from the previous year-end to the opening balances. Other changes between periods, such as issue of shares, are also entered in the register of historical rates.
The accounts are defined with the currency translation codes E, F, or G. When the currency translation is run, the program will load the equity value in the converted currency from the register of historical rates. If there is a difference between the period values and what is entered in the register of historical rates the remainder will also be converted at the historical rate referring to currency translation code E and F. Regarding the currency translation code G the remainder will be converted at the period average rate. If there is no value in the register of historical rates, the account will be converted at the closing rate (code E), the average rate (code F), or the period average rate (code G).
The net income for the period is calculated as a balance item in the balance sheet and is copied to the income statement. The final currency translation difference is calculated as a balance item in the income statement and booked to the account defined in the general configuration.
For more information, see section 2.2.2, The Register of Historical Rates.