Treasury – Mark To Market (MTM) configuration

Mark-to-Market Accounting:

Mark-To-Market (MTM) accounting is a type of accounting where a company’s assets are valued at current market price instead of the historic cost of the asset. This is where it differentiates itself from historic cost accounting where an asset is valued at its historic cost. There are two schools of thought where the ones in support of MTM state this practice of accounting provides the actual value of an asset hence preventing businesses from making the assets look costlier than they actually are based on the current market cost. On the other hand, ones disagreeing MTM accounting practice state this leads to incorrect valuation of long term assets which had a higher historic price than the current market price but it would certainly gain momentum in future.

With this product feature the system supports the automatic mark-to-market valuation when a commodity-based physical or financial transaction is changed.

Application Component:

1. FIN-FSCM-TRM (Treasury and Risk Management)
2. FIN-FSCM-TRM-TM (Transaction Manager)
3. FIN-FSCM-TRM-CRM (Commodity Risk Management)

Availability: SAP Enhancement Package 7 (SP05) for SAP ERP 6.0

(Source: https://help.sap.com/saphelp_sfin100/helpdata/en/e3/818d53c0c9cc26e10000000a4450e5/frameset.htm)

The related configuration steps are given below

Step 1 : – Define valuation rule

Define Valuation Rule

Create a New valuation rule and name it MTM

Step 2: – Other Transactions: Assign Valuation Rule via Product Type

Other Transactions: Assign Valuation Rule via Product Type

Assign Valuation Rule MTM to Product Type (in this case – EF)

Step 3: – Define Evaluation type

Define and Set Up Evaluation Type

Below, you can modify several data categories as per your requirement

Step 4 – Define Reference interest rate

A new reference rate (for instance, EUR) can be created by copying an existing reference interest rate and modify as per requirement. See below, a reference interest rate or LIBOR (London Inter-bank Offered Rate is an interest-rate average calculated from estimates submitted by the leading banks in London) rate is created for EUR currency with its properties (calculation method, type, term, unit of time and yield curve type- see step 5 to define yield curve type)

Step 5- Define Yield Curve Type

The yield curve provides a future expectation of interest rate based on maturity of a contract/bond. It can be upward, flat or inverted. The greater the slope of the curve, the greater is the interest rate.

Here, the required currencies can be added

Step 6- Enter Reference Interest Rates

Here, we define the LIBOR rate for the currency

Step 7: Enter and Evaluate Yield Curves (This will update automatically based on the above step)

Step 8 : NPV type added to the below procedure 1000

Step 9 : Define Position Management Procedure

Step 10 : Assign update type for derived business transactions for PMP 4001

Step 11 : Assign update type for valuation

Step 12 : Assign calendar

Assigned EUR currency to EU calendar

Once the above configuration steps are completed, one should be able to create a forward FX contract (tcode FTR_CREATE), valuate and calculate the NPV (tcode TPM60) and post the valuation (tcode TPM1)