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Author's profile photo Liling Jia

How to automatic post and reverse of valuation adjustments for Receivables?

According to IFRS 9, all financial liabilities should be measured at amortised cost. That means, organizations should be able to provide an “expected loss” model that focuses on the risk. the earlier recognition of impairment losses on receivables including trade receivables and even short-term receivables.

In S4HANA Cloud, we often have receivables from our business partners. To build the ‘expected loss’ model, we use the ‘risk class’ and ‘age grid of the receivables’. with those, you could post the expected loss as an expense for the total amount of receivables.

Generally, we call it ‘flat-rate value adjustment’. The system calculates the value adjustment of the open net value of the receivable at the valuation date and posts the reset value adjustment (for example on payment or when written off) on separate accounts (in accordance with IFRS 9).

Sample scenario for flat-rate value adjustment

Take this example scenario:

In March, we evaluated 1% of the receivables should be posted automatically as value adjustment.

In April, we need to reverse the previous ‘expected loss’ and evaluated 1.5% of receivables should be posted.

HOW to achieve?

1. SSCUI 102218 – Maintain Central Settings for Posting

Activated the flat-rate value adjustments as additional function.

2. SSCUI 102718 – Maintain Account Determination for Flat-Rate Value Adjustment

here you need to define the accounts to which the flat-rate value adjustments are to be posted. You must define an account for the expense of the value adjustments and a correction account for each combination of company code and receivables account.

3. (optional) SSCUI 102904 – Maintain Alternative Accounts for Resetting Individual Value Adjustments

4. SSCUI 102833 – Define Expected Credit Loss Rates

Here you could define and adjust the percentage rate for the flat-rate value adjustments, according to different risk class/aging increment and valid period.

above all, hope this useful function could make your life easier.

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      7 Comments
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      Author's profile photo Ana Moreira
      Ana Moreira

      Thanks for sharing Liling.

      Author's profile photo Liling Jia
      Liling Jia
      Blog Post Author

      hope this could help.

      Author's profile photo Owen Liu
      Owen Liu

      Thanks Liling!

      Author's profile photo Saumitra Deshmukh
      Saumitra Deshmukh

      Great Liling Jia . Thanks for sharing

      Author's profile photo Sandeep Kumar
      Sandeep Kumar

      Liling Jia Thanks for sharing.

      Author's profile photo Vijayendra Tiwari
      Vijayendra Tiwari

      Thanks for sharing Liling Jia

      Author's profile photo Rachel Suo
      Rachel Suo

      good to know, thanks Liling~