Foreign Currency Revaluation Using Delta Logic and Reversal after Settlement
In this blog post, I intend to provide an overview of FCV using delta logic and reversal after settlement, including step by step instructions (Configuration & End user steps). This will aid in comprehending how the FCV works when delta logic is enabled, ultimately, benefiting the organization by preventing the impact on the Profit and loss statement.
Accounting standards IAS 21 mandate that the foreign currency revaluation to be carried out as a part of period-end closing when preparing the financial statement to present the true value of foreign currency open items or foreign currency assets/liabilities at closing date in presentation currency.
Due to fluctuating exchange rates between currencies, this adjustment takes into account, the changing value of payables, receivables and assets. In order to produce valued account balances in presentation currency and the corresponding impact on the financial result, the valuation process generates postings for valuation difference.
Case:1 (Regular process “FCV unrealized Gain loss & Reversals”)
When we execute FCV system will generate two accounting documents. One for the actual valuation at the end of the month and the other is for the reversal on the following day. I.e., the first day of the following month, depending on the selection screen parameters, but sometimes the next period is not open for the reversal so system will generate only one document in FCV run. You may have to open the period and keep it running by using batch input.
Case: 2 (Delta Logic)
Let’s assume that Business is obliged not to generate a reversal entry on the first day of following month and reversal needs to happen after clearing the invoice or in the year end the reversal entry will be posted in the next year P&L / Schedule 6 (balance sheet).
This we can achieve by using the “Delta logic” & “Reversal After settlement date” functionality.
Points to be considered or noted:
- The reversal document will be published with the same date as the clearing document and with the clearing date exchange rate. For example, if an invoice is cleared on 01.09.2023 and FCV has been executed on month end, in this run system will generate the reversal entry with 01.09.2023 date (Posting & document date).
- Documents will not be considered in the next month run.
Once delta logic is enabled, System will compare the exchange rate from the most recent revaluation cycle and the current revaluation cycle to identify differences for posting.
A. FCV Configuration:
SPRO – FINANCIAL ACCOUNTING – GENERAL LEDGER ACCOUTING – PERIODIC PROCESSING – VALUATE
- Define Valuation Methods
- Define Valuation Areas
- Assignment of Accounting Principles to Ledger group
- Assignment of valuation areas to Accounting Principles
- Prepare Automatic Postings for Foreign Currency Valuation
Let’s Activate Delta and Reversal after settlement date.
SPRO – FINANCIAL ACCOUNTING – GENERAL LEDGER ACCOUTING – PERIODIC PROCESSING – VALUATE – Activate Delta
B. End user Process:
- Maintain Exchange Rates: OB08
Exchange rate at the time of posting the invoice.
2. Post sample Invoice:
3. Maintain Exchange Rates: OB08
4. Execute Foreign Currency Revaluation: FAGL_FCV
From S4 HANA, SAP has provided a new transaction code for FC Valuation FAGL_FCV. Old T. code FAGL_FC_VAL is obsolete.
If you select Determine Automatically under posting parameters, system will derive the Document date and posting date automatically based on the valuation key date.
If you select Valuate Vendors, system will perform the FCV only for Vendors. If we select both Valuate Vendors/ Customer system perform FCV for both customers and Vendors in single run.
After executing the Forex revaluation system will generate accounting document as per below image.
As you can see in the above screenshot, irrespective of generating 2 Postings, system generated only 1 posting due to Delta Activation. Additionally, we have chosen Reversal after settlement date, so once the invoice has been cleared, it will reverse in the following cycle.
Assume on 1st September the rate has been updated and payment has been made.
Exchange rate at the time of clearing:
Run FCV for the end of September. In this cycle system will generate the reversal accounting document.
FAGL_FCV input parameters on September run
Note: One thing to keep in mind is that the valuation rest functionality won’t support if we activate delta logic. if the business wants to reverse the document, we must reverse it manually.
I trust that this blog has aided your comprehension of FCV Configuration procedures, Business Process Scenarios and end user instructions using sample data.