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Foreign Currency valuation process :

- There are two part in it.

1. One is vendor and customer open item valuation

2. GL accounts.

- The functional objective of Foreign Currency Valuation is that, at the month end you will have certain
open item which needs to be revalued with the month end Exchange rate

to determine the exact financial stantding for that period. One the month end process is completed
then the revaluation entries are reversed. In accounting terms it is called Unrealised gain or loss.

- All open items in foreign currency are valuated as part of the foreign currency valuation:

- The individual open items of an account in foreign currency form the basis of the valuation, that is,
every open item of an account in foreign currency is valuated individually.

- Example of open items are customers, Vendors, or GL accounts managed on open item basis (SKB1-
XOPVW = X)

- The total difference from all the open items in an account is posted to a financial statement
adjustment account. The account therefore retains its original balance.

- The exchange rate profit or loss from the valuation is posted to a separate expense or revenue
account for exchange rate differences as an offsetting posting.
- A valuation cannot be made by posting to the payables/receivalbes account, since reconcilation
accounts cannot be directly posted to.

- For this reason the amount is posted to an adjustment account, which appears in the same line of the
balance sheet as the reconcilation account.

( Realized Exchnage rate Diffrence Gain/ Loss:- )

When the foreign currency transaction has actually completed and you have
gained/lossed due to that transaction is called as realized gain/loss.

For example you have purchased the goods on 01 Jan, 2008 for 5000 INR (100 USD)
on credit. Now on 16th Jan, 2008 you paid the invoice by paying 100 USD and clear it off. But on 16th
Jan, the exchange rate between INR: USD came down to 45. So you gained by amount 500 INR (100 USD
* (50-45)). This is the realized gain when you clear of the invoice againest the payment.

( UnRealized Exchnage rate Diffrence Gain/ Loss:- )

Here the foreign exchange rate diffrence appear but not realized, because the transaction is not
cleared up.

Taking the scenario above, if you do not pay on 16th jan and invoice remains open. You run the
F.05 at month end to revaluate the open items and on 31st Jan, the exchange rate came down at 48 INR
per USD. Then F.05 will show the unrealized gain of 200 INR (100 USD * (50-48)).

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=> Configuration <=

- Check Local currency of the company T-code OBY6

- Now set the exchange rate in OB08, set the rate as per your requirements i.e. Direct quotation or
Indirect Quotation. Select exchange rate type and enter starting date, the foreign currency,exchange
rate and co. code currency.

- and you can change the currency exchange rates accordingly thereafter in OB08.

- Define Valuation methods => Implementation Guide:Finanical Accounting (New) -> General Ledger
Accounting (New) -> Periodic Processing -> Valuate -> Define valuation methods.

- create a valuation method, ( valuation procedure - Always evaluate, document type - SA, Exchange rate
determination - M,B,S or any other exchange rate defined ) + save.

- Define valuation Areas, create a new valuation area ( val. area, select valuation method, currency type
- 10 co. code currency )

- Define Accounting principles => Financial accounting (new) -> financial accounting Global settings
(New) -> Ledgers -> Ledger -> Parallel Accounting -> Define accounting principles -> New entries

- Assign accounting principles to ledgers group. requied if you have more than one ledger. select
accounting princople, select target ledger and save.

- Check Assignment of accounting principles to Ledger group.

- Assign Valuation Areas and Accounting principles.

- Create the required G/l masters for foreign currency valuation. For eg: for vendor open items, you may
need the following accounts :-

- Realized gain ( revenue, P&L a/c)

- Realized Loss ( expense, P&L a/c)

- Unrealized loss/gain ( Under capital, Liability a/c, Balance sheet)

- Balance sheet adjustment ( Balance sheet, Liability a/c) Note: For customers, it
will be on Asset side.
- Implementation Guide:Finanical Accounting (New) -> General Ledger Accounting (New) -> Periodic
Processing -> Valuate -> Foreign currency valuation -> Prepare Automatic postings for foreign currency
valuation.

- For open items/G/l accounts Maintain the values in KDF (OB09). Here we have to enter various G/L
accounts which will be affected by Exchange rate differences. for eg: realized loss/gain a/c (p&l),
val./Unrealized loss/gain account (uder capital- BS), Balancesheet adjustment account vendor/customer
(same side of respective recon a/c) .

- For Exchange rate difference byexchange rate key in KDB (OBA1). Here, we assign realized loss and
realized gain a/c's.

- Target accounts for KDB/KDF can also be assigned as per the valuation area. For this click on any of the
both options, In "enter chart of accounts" dialogue box click on the "yellow arrow" and select the
valuation area. Now, you can maintain the target G/L accounts there.

- Book an Invoice by FB60/F-43 (in a foreign currency)

- Perform Foreign currency valuation (In case of New G/L), To perform a foreign currency valuation, from
the SAP Easy Access Screen, choose Accounting -> Financial Accounting -> General ledger/Accounts
Receivable/Accounts Payalbe -> Periodic processing -> Closing -> Valuate -> Foreign Currency Valuation
(New) -> Transaction FAGL_FC_VAL (Program FAGL_FC_VALUATION)

- Enter details and execute. system will display foreign currency valuation data.

- Click on postings buttons, here we can see the FC vauation and reverse posting.

- In F.05, To create valuation documents create postings must be ticked on, if you execute without
create postings ticked, this means that program is run in test mode.

- If there are errors when posting, a batch input session is created (transaction SM35)

- Update run is saved in table FAGL_BSBW_HISTRY

Possible error at the time of posting:

- You may only enter amounts up to INR 500,000.00 or INR xxxxxxxx.

- It means that "Amount per open item account item" in OBA4 is less than the invoice amount. We will
have to increase the limit for the user.

- Also check values in OB57.