Change in functional currency due to rupiahization of domestic transactions in Indonesia



The flow of changing the functional currency from the dollar to the rupiah

From July 2015, domestic transactions are obliged to be conducted in basic rupiah basis, so inevitably, the accounting process will be mainly denominated in rupiah.

Apart from this functional currency issue, 2015 was also a year of many developments in business practices, such as the requirement that VAT declarations via Tax Invoice (Faktur Pajak) be fully online via e-Faktur, and the recommendation that contracts related to domestic business transactions should be prepared in Indonesian as a basic language.

A change in functional currency requires a cut-off at some point (usually at the beginning of the year) to change the basic parameters of the system from the dollar to the rupiah.

  1. Rupiah-based system environment and DB preparation
  2. Migration of masters
  3. Examining the impact on existing forms and vouchers
  4. Preparation of opening balance on rupiah basis (A/P and A/R are required on an invoice basis for settlement)
  5. Initial closing process on a rupiah basis

The important thing is to match the opening balance of receivables A/R and liabilities A/P with the opening balance on the Trial Balance in rupiah terms.

This is fine if the process involves A/R and A/P adjustments, such as Debit Notes and Credit Notes, but if the process has an impact only on G/L, such as foreign exchange adjustments or tax adjustments, the balance between the two will not match up.

Foreign currency valuation conversion

There are two types of foreign currency revaluation, one for receivables A/R and debts A/P, and the other for other current assets and liabilities.

Cross-currencies with the dollar in terms of the rupiah, such as the yen, Singapore dollar, and Thai baht, will still be subject to conversion, but of course, the basis for conversion will be the rupiah.

Bank Indonesia's (Bank Indonesia) Middle Rate (TTM) is generally used for all transactions, and Tokyo Mitsubishi's (BOTM) TTM is fine, but since it is a commercial rate for private banks, I think it is safer to use the BI rate.

The system also allows the use of TTS (sell to the bank) for buying and TTB (buy to the bank) for selling, but it would be a management problem if the same day's selling and buying are the same amount on a foreign currency basis but different on a functional currency basis.

In some companies, the rate at the end of the previous month is used as the flat rate for the current month's transactions. In this case, there is no realized foreign exchange gain or loss at the time of settlement, but there may be an unrealized foreign exchange loss at the time of foreign currency valuation at the end of the month.

In this case, since the last day of the current month is also the last day of the previous month's trading rate in the exchange rate master, it is necessary to set the rate for the revision in addition to the trading rate and the tax rate.

Separation and reversal methods

There are two methods of foreign currency valuation conversion: the separation method, which separates the acquisition cost, and the reversal method, which maintains the acquisition cost.

In the case of the decoupling method, the valuation gain or loss in comparison to the previous month is increased or decreased in B/S on the P/L at the end of each month, while in the case of the reversal method, the reversal journal is generated and reset at the beginning of the next month against the foreign exchange journal at the end of the current month, so the valuation gain or loss in comparison to the date of acquisition is increased or decreased in B/S on the P/L at the end of each month.

Separation method (difference between the rate at the end of the previous month and the rate at the end of the current month)

  • Dr. Unrealized Forex loss 30    Cr. AR 30
Reversal method (difference between the rate on the acquisition date and the rate at the end of the current month)

  • 月末
    Dr. Unrealized Forex loss 35    Cr. AR 35
  • 翌月初に洗替
    Dr. AR 35    Cr. Unrealized Forex loss 35