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[sap-acct] Foreign Currency Valuation in SAP

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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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