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Hello VidhyaDhar,
Nice to see your post on grilling the basic nature of accounting.
1. In India, based on CBEC has two different exchange rate for Import and Export.
2. I am not sure but Roy can you clarify there is option while revaluation where we can give forex gain and losses account separately, Wherein if it is loss we can use P/L and if it profit ahhh we shall keep it Balance sheet and make reversal entry on the next day.
The very nature of law of conservatism can be achieved on a click.
Regards,
Sanjay.
---------------Original Message---------------
From: VidhyaDhar
Sent: Saturday, July 24, 2010 1:15 PM
Subject: Foreign Currency Valuation in SAP
> 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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