Hi All
The below article will explain one of the approaches through which Inventory can be valued on FIFO basis in SAP -
We have two approaches to present our Inventory on FIFO basis -
I will discuss the configuration steps of Balance Sheet Valuation Method here.
Before beginning with the configuration of this approach, let me explain with an example for what exactly this approach will do -
Taking a single Material (say A) for which below movements happened -
S.No. | Movement | Quantity (Kg) | Price per Unit ($/Kg) | Amount ($) | Moving Average Price ($) |
---|---|---|---|---|---|
1. | Goods Received | 10 | 100.00 | 1000.00 | 100.00 |
2. | Goods Received | 30 | 150.00 | 4500.00 | 137.50 |
3. | Goods Issued | 15 | 137.50 (MAP picked up) | 2062.50 | 137.50 |
4. | Goods Issued | 10 | 137.50 (MAP picked up) | 1375.00 | 137.50 |
Closing Stock @ MAP = 15 Kgs @ Rs. 137.50 = Rs.2062.50/-
Closing Stock @ FIFO = 15 Kgs @ Rs. 150.00 = Rs.2250.00/-
Valuation Variance = +Rs. 187.50/-
Under this approach, system will identify the material movements (in/out) within the period based on assigned Movement Types (Transaction Code - OMW4) and calculate the FIFO price as Rs. 2250.00.
The FIFO run can then compare the FIFO value with the Book Value and revalue the inventory to the FIFO Price and post the revaluation entry. It will use the accounts in OBYC - INV and PRD based on the valuation class of the material and post the below entry to bring in the financial impact of above valuation -
Inventory Account Dr. 187.50
Price Difference Cr. 187.50
The above entry will post the differential amount entry to bring the Inventory Value of selected materials at FIFO without changing the transactional data entered during the period.
Now, explaining on the configuration steps to achieve the above functionality -
1. Activating FIFO Valuation
2. Defining Valuation Levels
3. Define FIFO Relevant Movement Types
4. Define FIFO Methods
VOM - Previous Month - If this option is assigned to a FIFO Method, system will check the FIFO value calculated against book value of material as on last date of the previous month (MM Period). For e.g. If the previous period is October and current period is November, then System will check the FIFO value calculated (say $100) with the Material Book Value as on October 31 (say $95), and display/post the variance of $ 5.
VVM - Month before Last - Using this option means System will check the FIFO value calculated ($100) with the Material Book Value as on September 30 (say $97), and display/post the variance of $ 3.
GJE - Previous Year - Using this option means System will check the FIFO value calculated ($100) with the Material Book Value as on October 31 last year (say $90), and display/post the variance of $ 10.
CUR - Current - Using this option means System will check the FIFO value calculated ($100) with the Material Book Value as on FIFO run date (say $99), and display/post the variance of $ 1.
5. Configure FIFO Valuation Areas (Defining Base Year)
With the above five steps, configuration is complete to allow system to run Balance Sheet Inventory Valuation on FIFO Basis.
Now, from end-user point of view, three transaction codes needs to be executed to complete the FIFO run during Month-end -
1. MRF4 - FIFO Valuation: Flag Materials -
Note - Make sure to tick the Update "Material Master and FIFO Index Table" option. Without ticking this, nothing will happen.
2. MRF3 - FIFO Valuation: Create Document Extract -
Note - Ensure ticking Update Receipt Data. Otherwise nothing will get selected for FIFO run.
3. MRF1 - Execute FIFO Valuation -
This concludes the entire FIFO Valuation Run which can help you revalue the inventory on FIFO Basis in the Financial Statements without touching the MM module. Further, it can be put to use for displaying the impact of change in accounting policies wherein a shift fromFIFO to MAP is made by any organisation.
Feel free to provide your ratings/comments/remarks for improvement of this document.
Regards
Arjun Malviya
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