Foreign Currency Valuation

1) Use
To create your financial statements, perform a foreign currency valuation. This
valuation covers the following accounts and items:
1) Foreign currency balance sheet accounts, that is, the G/L accounts that you
run in foreign currency.
The balances of the G/L accounts that are not managed on an open item basis
are valuated in foreign currency.
2) Open items that were posted in foreign currency.
Open items that are open on the key date are valuated in foreign currency.
The following options are available for the foreign currency valuation:
1) Perform the valuation in local currency, (company code currency), or a parallel
currency (for example, group currency).
2) Use of different valuation methods (for example, lowest value principle).
3) Additional currencies translations from the local currency, foreign currency
valuation automatically performs a currency translation according to FASB 52 (US
GAAP).

2) SAP Process
There are two parts 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
will have certain open item which needs to be revalued with the month end
Exchange rate to determine the exact financial standing 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.

Now In case of loss on valuation of a particular invoices, the system will pass the
below given entry
Dr. Unrealised Loss account (P&L GL account)
Cr. Sundry creditor Valuation GL account (B/S GL account)

In case of gain
Dr. Sundry creditor Valuation GL account (B/S GL account)
Cr. Unrealised Loss account (P&L GL account)

The same happens for customer open item, GL open item, Bank GL account
which is maintained in Foreign currency.

In terms of configuration in SAP, create Following GL account

P&L Accounts
1. Unrealised Realised Gain or Loss account (you can have separate GL defined
and assigned, depends on your company how they want)
2. Unrealised Realised Gain or Loss account for bank (you can have separate GL
defined and assigned, depends on your company how they want)

Balance Sheet GL

1. Sundry creditor Valuation GL account

2. Sundry debtor Valuation GL account
3. Bank Valuation GL account

3) Features
In the new General Ledger, the report Foreign Currency Valuation (New) provides
you with the following functions:
1. Valuation of foreign currency balance sheet accounts
2. Valuation of open items in foreign currencies
3. Saving the exchange rate differences determined from the valuation per
document
4. Performing the adjustment postings required

Valuation Methods
1) Definition
Cross-chart of accounts specification that contains the valuation approach to be
used for performing a foreign currency valuation as part of the closing
operations, for example, according to the lowest value principle.

2) Use
To perform a foreign currency valuation in new General Ledger Accounting, need
to have specified in SAP which valuation method is applied.

3) Structure
In a valuation method, you make the following specifications for the foreign
currency valuation:
1. The valuation procedure to be used, for example, lowest value principle
2. How the exchange rate differences determined should be posted, for
example, which document type should be used
3. The basis on which the exchange rate should be determined, for example,
which exchange rate type should be used.

Valuation of Foreign Currency Balance Sheet Accounts

Use
Your foreign currency balance sheet accounts are valuated as part of the foreign currency
valuation:

The balance, that is, the foreign currency balance of the G/L account managed in
the foreign currency, forms the basis of the valuation for each foreign currency and
foreign currency balance sheet account.

The result of the valuation is posted to the valuated account or to a adjustment

account.

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.

The balance of your fixed term deposit account (foreign currency balance sheet account)
has a balance of 1,000 USD and 1,700 EUR (see the following figure, 1). An exchange
rate devaluation occurs at the time of the valuation. The account balance is now
valuated with an exchange rate of 1.6300. The valuation programs posts the exchange
rate difference to the fixed term deposit account and to the account for exchange rate
differences (see following figure, 2).

As a result of the valuation, a difference arises in your local currency. However,

only postings in the foreign currency specified in the master record (account
currency) are permitted to foreign currency balance sheet accounts. The
exchange rate difference is therefore posted with a foreign currency amount of
zero, and a local currency amount equal to the exchange rate difference.

Prerequisites
To evaluate your foreign currency balance sheet accounts, you must define
expense and revenue accounts for exchange rate differences. You can group your
foreign currency balance sheet accounts and define expense and revenue
accounts for exchange rate differences for each group.
You group the accounts using an exchange rate key in the master record of the
foreign currency balance sheet accounts. In Customizing, assign the expense and
revenue accounts for exchange rate differences to this exchange rate difference
key.

Features
You have the following options when defining the expense and revenue accounts
for exchange rate differences:

If you perform parallel valuations with different valuation methods, you can
also use your account determination from the valuation of open items in
foreign currency for a specific G/L account. To do this, enter the G/L account
in the account determination for the valuation of open items in foreign
currency. If you have implemented parallel ledgers, the balance of the
account read from the ledger in question and valuated.

You can subsequently reverse the valuation of the balances .

Example
You want to analyze the exchange rate profits and losses arising on foreign
currency balance sheet accounts and securities accounts in USD separately. To
do this, you create in Customizing separate expense and revenue accounts for

exchange rate differences for these USD accounts. You create a joint expense
account and joint revenue account for exchange rate differences for all other
currencies. You can include the currency and the type of asset (for example,
foreign exchange or security) in the exchange rate difference key.

Exchange rate difference key

Description

1USD

Foreign exchanges in USD

Foreign exchanges in other currencies

2USD

Securities in USD

Securities in other currencies

Currency Translation
Use
You can translate your account balances from local currency into group currency.
The translation is performed in accordance with FASB 52 (US GAAP) or IAS.
However, you can also perform the currency translation for other currency types.

Integration
In General Ledger Accounting, you can only perform a currency translation as
part of the foreign currency valuation.