Inventory Exchange Rate
The inventory exchange rate is used for inventory, purchase order, scheduled order receipt, and work order transactions to convert between the statutory currency and base currency.
Note: The inventory exchange rate is optional, and its use depends on whether your business process requires a dedicated rate for inventory transactions.
For purchase order or scheduled order receipt transactions where the inventory exchange rate is in effect at the time of PO receipt, the system uses the following calculation for statutory currency:
1 For inventory transactions on inventory accounts, the system firsts look for the inventory exchange rate type to convert the base currency value to the statutory currency value.
2 If the system cannot find an inventory exchange rate type, it looks for a statutory exchange rate type.
3 If the system cannot find a statutory exchange rate type, it has the option, depending on a setting in Exchange Rate Type Create, to revert to using the accounting type rate for inventory transaction conversions to statutory currency.
4 As a result of using different rates for the inventory account and other accounts in the same posting, a variance in statutory currency can occur. In PO receipt transactions, this results in a purchase price variance in statutory currency.
5 The system posts the exchange rate difference to the purchase price variance account for statutory currency.
6 For other inventory transactions, the statutory currency amounts from all posting lines is converted using the inventory exchange rates. Therefore, no variance occurs.
Note: In general, the rates valid on the posting date of the transaction are used. However, in receiver matching, the posting lines on the PO receipt account, Expense Accrual accounts, and Reversal of Old Taxes accounts are an exception to this and use the exchange rate from the receipt transaction. Because the other posting lines in the receiver matching use the statutory rate at invoice date, the posting shows a balance difference in statutory currency, which is posted as a realized gain or loss in statutory currency.
Similarly, in payment transactions, the posting on the customer and supplier control accounts uses the exchange rate used for the invoice creation. Other accounts, such as the bank account, use the rate at the posting date of the payment. The difference is automatically posted as a realized gain or loss to system-type Realized Gain and Realized Loss accounts.
Inventory Exchange Rate Example
For this transaction, the base currency is USD, the statutory currency, is MXN, and transaction currency is USD. A PO is created for 25 items at 14 USD per item.
The exchange rates from MXN to USD were:
1 USD = 12.8 MXN when the PO was created
1 USD = 12.9 MXN at the time of the PO receipt
The extended PO amount without taxes or charges is 350.00 USD (14.00 USD transaction currency * 25).
When the PO was created, the MXN value was 4480 (350.00 USD using the 12.8 exchange rate).
The PO is received and recorded in the base currency.
Inventory: 350 USD
PO receipts: 350 USD (350.00 USD/12.9 =4515 MXN, the exchange rate in effect when the PO receipt was created)
Purchase Price Variance: 35 MXN