How are exchange rate differences applied when using production prepayments?
Inventory values when considering changes in production prepayments can be quite tricky. Therefore this guide will try to explain the rules that TRAEDE uses when applying exchange rates for prepaid production orders.
In short prepayments and PO invoices will be converted using their own exchange rate. But the inventory of PO deliveries will be converted using a blended exchange rate of the paid amounts.
Fully prepaid production orders
You have a PO for 1000 pcs. of SKU A. Unit cost is 100 EUR. So the total PO is for 1000 x 100 = 100,000 EUR
You have to prepay 100%, so the supplier issues a prepayment invoice for 100,000 EUR. The date is 01/01 and the exchange rate EUR -> your base currency is 7,5.
This means the PO prepayment is now booked in your accounting system at 750,000 DKK.
The PO now ships and the supplier issues the final commercial invoice for 100,000 EUR. The date is 01/06 and the exchange rate EUR -> your base currency is 8.
This means the final invoice is now booked in your accounting system at 800,000 DKK.
So the 2 documents have a value 750,000 DKK og 800,000 DKK
However your inventory value is a blended exchange rate of the paid amounts. So in this scenario your inventory will be valued at 750,000 DKK.
Partially prepaid production orders
You have a PO for 1000 pcs. of SKU A. Unit cost is 100 EUR. So the total PO is for 1000 x 100 = 100,000 EUR
You have to prepay 30%, so the supplier issues a prepayment invoice for 30,000 EUR. The date is 01/01 and the exchange rate EUR -> your base currency is 7,5.
This means the PO prepayment is now booked in your accounting system at 225,000 DKK.
The PO now ships and the supplier issues the final commercial invoice for 100,000 EUR (where 30,000 EUR is prepaid). The date is 01/06 and the exchange rate EUR -> your base currency is 8.
This means the final invoice is now booked in your accounting system at 560,000 DKK.
So the 2 documents have a value 225,000 DKK og 560,000 DKK
However your inventory value is a blended exchange rate of the paid amounts. So in this scenario your inventory will be valued at 785,000 DKK.