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Dear Amit
Thanks for your reply.
However, I am not talking about realization differences. I am referring to
differences arising out of statutory foreign currency valuation of
unrealized items ( customer dues , vendor dues etc... which are still
pending and have not realized as yet at the time of annual closing of my
books ). Your explanation gels well with stocks which need revaluation.
However, even in your area ( presumably materials management / Sales and
Distribution) , how do you treat your Goods in transit?
I am seeking a rationale with regard to customer and vendor dues from the
Financial Accounting point of view:
Please read the following paragraph and see if you can help.
While an *unfavorable dip* in exchange rate can help me post a *valuation
loss* with regard to *customer dues receivable* ( perfectly understandable
and is in line with the principle of conservatism ) , my *vendor dues
payable *stands quantified for a *lesser* amount ( which is favorable to me
yet beats the principle of conservatism and the meaning of lowest value
principle ).
This is what is driving me nuts. I would be thankful if you can rationalize
this and offer a reason for such system behavior.
Regards
VidhyaDhar
On Sun, Jul 25, 2010 at 8:41 AM, amitsapfico via sap-acct <
sap-acct@groups.ittoolbox.com> wrote:
> Posted by amitsapfico(SAP Business Analyst)
> on Jul 24 at 11:45 PM The
> lowest value principle is a method of balance sheet valuation for material
> stocks. The aim of this principle is to valuate the present stocks as
> carefully as possible according to the recognition-of-loss principle.
> Pure paper gain or loss is valuated and not releazed . The releazation will
> happen when the payment is made or received.
>
> Lowest value principle says that gain/loss should be valuated not releazed.
>
>
> hope this helps.
> Thanks
> Amit
>
>
> On Sat, Jul 24, 2010 at 10:15 AM, VidhyaDhar via sap-acct <sap-acct@
> groups.ittoolbox.com> <http://groups.ittoolbox.com%3E> wrote:
>
> Posted by VidhyaDhar (User-friendly SAP FI Consultant)
> on Jul 24 at 1:12 PM
> Hi Friends
>
> Foreign Currency Valuation is performed using a valuation method which
> includes a single procedure such as Lowest Value Principle . If my company
> code were to revalue my receivable open items and there is an unfavorable
> drop in exchange rate , I end up booking a loss arising out of such a drop
> and I can understand the logic of conservatism being used. However , if on
> the same day I were to revalue my payable open items using the same
> procedure, Would I not be ending up booking a profit ? If the lowest value
> procedure results in booking a profit, then isn't the premise of the
> valuation procedure conforming to conservatism principle lost ?
>
> Example Customer Invoice raised for 1 USD = 45 INR on 01 Jan 2010
>
> Upon revaluation (using lowest value principle) at the time of closing (
> viz. 31 Jan 2010) the exchange rate is 42 INR - then I would book a loss of
> 3 INR , which is perfectly understandable.
>
> However, if I had a Vendor Invoice for 1 USD = 45 INR on 01 Jan 2010
>
> Upon revaluation using the same principle on 31 Jan 2010, My liability
> comes down by 3 INR leading to my booking a profit of 3 INR.
>
> If the system allows me to book profit using lowest value principle, then
> isn't the premise of conservatism underlying the lowest value principle lost
> ? Does not the very nomenclature of lowest value principle becomes
> questionable ? Or Am I missing out something and comprehending things
> incorrectly?
>
> Would appreciate your expert opinions, please
>
> Thanks in Advance
>
> Regards
>
> VidhyaDhar
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