Transaction level forex rate for journal entries

1

Suppose I have a tax expense of SGD 1, Manager would report this amount in the P&L (in base currency) as USD 0.75 using the year-end exchange rate I’ve keyed in. However, for financial statement reporting, I need to convert the SGD 1 tax expense using the average rate, which might result in the tax expense being different from what is reported by Manager.

I want to make sure my financial statement ties to Manager. Hence, I want Manager to use the average rate to convert my tax expense into the base currency. Is there a way I can achieve this?

2

For performance reasons, I think I’m going to make it so every transaction captures transaction-level exchange rate.

And the exchange rates under Settings tab will be used for revaluation.

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3

Hi @lubos,
Has this been implemented? I do not see an option to record transaction-level exchange rate in Journal Entry.
Thanks!

4

@irfans, I think you are mixing concepts in this thread. Your initial subject was “…forex rate for journal entries.” But journal entries must balance and, therefore, are in the same currency on both debit and credit side. If they were not, a change in exchange rates would unbalance the journal entry. So, you can choose the currency, but only one currency.

Your initial post did not refer to a journal entry in its body, but to recording of a tax expense, which is not done with a journal entry in Manager. Further, you suggested using an average exchange rate, but did not suggest any ideas about what period the average would be calculated over or when the calculation would be applied.

I think @lubos response from almost 2 years ago referred to situations where multiple currencies are involved, such as when a sales invoice in one currency is settled by a receipt in another. It is already possible to force an equivalency in a situation like that, avoiding forex gains and losses from turning previously paid in full invoices into unpaid ones.

In your latest post, you are back to journal entries, in line with your subject. Can you explain just how you think this would be used?

5

@Tut, I think it’s best I explain what I have done so far, and arrive at the issue I’m facing.

Some background info first:

  • My financial year follows the calendar year,
  • My base currency in Manager is USD, as required by IFRS’ functional currency assessment,
  • My presentation currency is also USD (for convenience), and
  • My local tax authority bills me in SGD (my local currency).
  • Exchange rates are updated into Manager, on the last day of every month.
  • SGD per USD on 31 Dec 2017 was 1.3366, and
  • the average SGD per USD for the whole financial period (i.e. Jan '17 to Dec’17) was 1.36756

In the year 2018, I received my corporate tax bill of SGD 6,647.75 for the year 2017.
To recognize the tax expense in the correct period, i.e. year 2017, I passed a journal entry on 31 Dec 2017 as such:

Dr: Corporate income tax (P/L - expense) SGD 6,647.75
Cr. Provision for corporate income tax (B/S - liability) SGD 6,647.75

At year-end balance sheet date, i.e. 31 December 2017, the balance sheet would show a tax payable of USD 4,973.63 (computation: SGD 6,647.75 divided by month-end rate of 1.3366).

So here is where the problem begins. My income tax expense for the year 2017 is USD 4,857.69, but I am not in compliant with IAS 21 which requires me to use the average rate of 1.36756. So when I prepare my statutory financial statement, the tax expense is USD 4,861.03 (computation: SGD 6,647.75 divided by month-end rate of 1.36756).

So here is what I’m requesting - at the point of the recording the journal, if I can specify a specific exchange rate to use, that is, in my case, the average rate, I would not have any variance between Manager and my statutory FS.

One work-around would be that I record the tax expense in USD right away using the average rate. However, when I pay off the tax in 2018 from my SGD account, I can’t specifically mention the equivalent in USD. So I have difficulty zero-rising the balance after settlement.

6

Two observations, @irfans:

  • Your journal entry is SGD to SGD, so I fail to understand why you want to specify an exchange rate for it. The currencies are identical on both legs of the transaction.
  • Couldn’t you enter your tax bill as a purchase invoice from a “supplier” denominated in SGD and pay in USD? The payment form would let you force the equivalency.

I may not be understanding what you are doing, but it seems you are making things more complicated than necessary.

7

Hi @Tut, you may not understand my objective unless you’re familiar with IFRS and IAS. I’m just following the mandatory standards.

8

Accounting standards have nothing to do with trying to interject an exchange rate into a journal entry where only one currency is involved. That is the part that really confuses me.

9

This is a problem you cannot escape as you have elected to use a foreign currency as your functional currency and presentation currency.

You can create a Special Account for Current Tax. Special Accounts have settings for currency.

When entering tax bills in the journal entry edit screen, you will see a field where you can enter/force an equivalent amount.

You should also have a bank account in SGD so that settling of liabilities in the local currency will be smooth.

This should solve the problem

10

Added to the latest version (23.7.3)

When you select foreign currency on journal entry, Exchange Rate field will be visible.

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Also Journal view for transaction has been improved to better show how foreign currency amounts translate to base currency amounts.

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