Effect of exchange rate changes on cash and cash equivalents 2226



  • Hello Friends
    I need help:
    How do we calculate the item on the cash-flow statement ‘Effect of exchange rate changes on cash and cash equivalents when finalizing financial statements?’
    Are ERP’s capable to calculate Effect of exchange rate changes on cash and cash equivalents when finalizing financial statements?
    Is Hyperion capable to calculate Effect of exchange rate changes on cash and cash equivalents when finalizing financial statements?
    Does Hyperion perform currency translations?
    Your urgent attention to this matter is very highly appreciated?



  • Both ERP systems and Hyperion can calculate currency translations. To explain everything in detail would be a long lesson in SFAS 152.
    The simple calculation is to multply the change in exchange rates by the opening cash/cash equivalent balances to get the impact of FX.
    A simple example would be on where you had a balance sheet with -
    Cash - LC100 x FX of 1.5 to get USUSD150
    Current liabilities - LC(50) x FX of 1.5 to get USUSD(75)
    Equity - LC(50) x FX of 1.5 to get USUSD(75)
    At the end of the year, if nothing changes except you paid off the liability with the cash and the FX rate moves to 1.6, you would have -
    Cash - LC50 x FX of 1.6 to get USUSD80
    Current liabilities - LC(0) x FX of 1.6 to get USUSD(0)
    Equity - LC(50) x FX of 1.5 to get USUSD(75) (not impacted by FX)
    CTA - USUSD(5) (to balance)
    The CTA on cash is the change in the FX rate of (0.1) x BOY cash of LC100 = USUSD(10)
    The CTA on liabilities is the change in the FX rate of (0.1) x BOY liabilities of LC(50) = USUSD5
    Total FX impact of USD(5) is USD(10) on cash and USD5 on liabilities.
    In reality, exchange rates change daily, but we generally use an average rate to measure income statement items and the ending rate to measure the balance sheet. The FX impact on any specific balance sheet item is an estimate because we do not measure each transaction separately. One could argue that you use the average cash balancefor the measurement period to calculate FX impact instead of the beginning balance. This may be a better estimate, but it is still an estimate. You should speak with the external auditor to see if they have a preference in how this is calculated. I believe that we use the average balance method to estimate the impact of rate changes on cash and other balance sheet items.
    While the impact on cash is the only specific impact of rate changes shown on the cash flow statement, total FX impact must be measured for all line items and reversed out of the net change when preparing the cash flow as the rate change impact is a non-cash event.



  • Thx.
    This means that impact of translation on the beginning balance still remaining at end of the year would be the item captioned ‘Effect of Exchange Rates on Cash and Cash Equivalents’ on the cash flow statement. Per your example, it should be USD5 (viz LC(50) X (1.6-1.5)). Am I correct?
    Or should it be USD10?
    Best regards,
    Arif



  • You could either argue USD(10) based on BOY balance or USD(7.50) based on average balance (10 5)/2 x (.01)


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