11/21/2017 Foreign Currency Valuation | SAP Blogs

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Foreign Currency Valuation

September 27, 2016 | 241 Views |

Alex Zhu
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FIN Treasury
Finance

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The foreign currency valuation is arguably the easiest ledger position valuation
to understand. It is always relevant if the position currency differs from the
valuation currency. The foreign currency valuation adjusts the value of the

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position in the valuation currency to the current exchange rate between the
position and valuation currency in accordance with the accounting principle.

This step determines the gains and losses resulting from changes in the
exchange rate. Determining the write-up / write-down amount in a foreign
currency:

The purchase value (= acquisition value) and the book value of the position
are determined in position and valuation currency.

The new book exchange rate is determined by comparing the following

exchange rates in accordance with the rules defined in the position
management procedure.

Current market exchange rate

Old book exchange rate

Acquisition exchange rate

The foreign currency write-up / write-down amount in valuation currency is

determined as follows:

(Book value of the position in position currency x New book exchange rate)
(Book value of the position in position currency x Old book exchange rate) =
Foreign exchange write-up/write-down amount in valuation currency.

The related configuration

1. The Type of step should be 005.

2. Procedure for a Step

The procedure is a user-assigned four-character name for a valuation

step that is defined in the context of a key date valuation. The name is
only unique within a valuation category. This means that, for example, an

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amortization procedure and a rate valuation procedure may both have the
same name.

3. Price/Rate Type

You use the Exchange Rate Type field to define which exchange rate is
relevant for the valuation: for example, the middle rate, bid rate, or similar
rates.

4. Component for Valuation

For the component for valuation, you almost always select the Book
Value option. You can select the Amortized Acquisition Value option if you
perform an amortization for the position. You can also choose whether
this valuation is supposed to be carried out for the key date valuation or
for the calculation of derived business transactions or only for the key
date valuation (Amortized Acquisition Value; Only at Valuation option)

You separately define how write-ups and write-downs are to occur: here,
the Write Up/Down to Market Value, Write Up/Down to Purchase Value,
and No Write Up/Down options are available. Based on these
parameters, we can already understand what the system calculates with
a foreign currency valuation. The basis, which is the book value in most
cases, is translated from the position currency into the valuation currency
using the key date rate. This value is compared to the present book value
in the valuation currency. In accordance with the rules for the write-up or
write-down, the system generates a flow of the difference and posts this
with the update types of the (V202) and (V203) fields.

5. Gain/loss handling

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In terms of the possible Gain/Loss Handling settings, according to IFRS,

although financial instruments in the Available for Sale holding category
are shown with their market price in the balance sheet, changes to the
market price must not be entered in the P/L. They are, in fact, posted in
the shareholders equity/other comprehensive income. The provisions in
the equity capital are dissolved into P/L only when the financial
instrument expires or is sold. You achieve this behavior using the Do Not
Realize Gains/Losses setting mentioned. In addition to the Foreign
Exchange Valuation component, the system manages a second
component, Foreign Exchange Valuation Not Affecting P/L. The system
also uses update types of fields (V202) and (V203) from Figure 5.46.
Naturally, you must assign another account determination.

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