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Former Member
November 23, 2015 6 minute read

SAP Inventory Valuation through FIFO

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Hi All

The below article will explain one of the approaches through which Inventory can be valued on FIFO basis in SAP –

We have two approaches to present our Inventory on FIFO basis –

1. Batch Input Method – A batch capturing the Receipt Value and the Quantity for every GR is maintained in
the system. At the time of Goods Issue, the system will fetch the value from the batches in the ascending
order.
2. Balance Sheet Valuation Method – In this approach, the goods are valued at the Moving Average Price
throughout the period and at the Period-end date, an adjustment entry is posted to bring the inventory at
the FIFO method.

I will discuss the con guration steps of Balance Sheet Valuation Method here.

Before beginning with the con guration of this approach, let me explain with an example for what exactly
this approach will do –

Taking a single Material (say A) for which below movements happened –

S.No. Movement Quantity (Kg) Price per Unit ($/Kg) Amount ($) Moving Average Price ($)
1. Goods Received 10 100.00 1000.00 100.00

2. Goods Received 30 150.00 4500.00 137.50

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S.No. Movement Quantity (Kg) Price per Unit ($/Kg) Amount ($) Moving Average Price ($)
3. Goods Issued 15 137.50 (MAP picked up) 2062.50 137.50
4. Goods Issued 10 137.50 (MAP picked up) 1375.00 137.50

Closing Stock @ MAP  = 15 Kgs @ Rs. 137.50 = Rs.2062.50/-

Closing Stock @ FIFO = 15 Kgs @ Rs. 150.00 = Rs.2250.00/-

Valuation Variance =    +Rs. 187.50/-

Under this approach, system will identify the material movements (in/out) within the period based on
assigned Movement Types (Transaction Code – OMW4) and calculate the FIFO price as Rs. 2250.00.

The FIFO run can then compare the FIFO value with the Book Value and revalue the inventory to the FIFO
Price and post the revaluation entry. It will use the accounts in OBYC – INV and PRD based on the valuation
class of the material and post the below entry to bring in the nancial impact of above valuation –

Inventory Account                Dr.           187.50

Price Di erence                   Cr.           187.50

The above entry will post the di erential amount entry to bring the Inventory Value of selected materials at
FIFO without changing the transactional data entered during the period.

Now, explaining on the con guration steps to achieve the above functionality –

1.     Activating FIFO Valuation

Menu Path: SPRO>IMG> Material Management> Valuation and Account Assignment> Balance Sheet
Valuation Procedures Con gure LIFO/FIFO Methods> General Information> Activate/Deactivate
LIFO/FIFO Valuation (Tcode – OMWE)

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2.     De ning Valuation Levels

SPRO>IMG> Material Management> Valuation and Account Assignment> Balance Sheet Valuation
Procedures Con gure LIFO/FIFO Methods> General Information> De ne LIFO/FIFO Valuation Levels
(Tcode – OMWL)
This is an important step because we can set valuation level either at Valuation Area or Company Code
level. Once saved and entries posted for valuation, changing this will require changing database and a
program needs to be called up to pursue that.

3.     De ne FIFO Relevant Movement Types

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SPRO>IMG> Material Management> Valuation and Account Assignment> Balance Sheet Valuation
Procedures Con gure LIFO/FIFO Methods> General Information> De ne LIFO/FIFO Relevant Movement
Types (T.Code – OMW4)
This is another step which will de ne the valuation. We have to de ne the FIFO relevant Movement Types
which can be used for Inventory Value calculation. You may check SAP Note # 167330 – Relevant receipts
for LIFO/FIFO valuation to select relevant movement types for FIFO.

4.     De ne FIFO Methods

SPRO>IMG> Material Management> Valuation and Account Assignment> Balance Sheet Valuation
Procedures Con gure LIFO/FIFO Methods> General Information> De ne LIFO/FIFO Methods. (T.Code –
OMWP)
The method can be copied from any of the standard methods or can be created afresh.
Method – 6 digit alphanumeric identi er for the method.
Sample – SAP provided 6 samples as shown below. 01 is only to be used for FIFO. Rest others are for
LIFO.
Single Receipts indicator – This indicator will identify if you allow the system to value on each inward
movement or not. If this is unchecked, then system will pick collective monthly movements.
Quantity Comparison – This eld will identify the comparison inventory value with which SAP will
check the FIFO value and show/post the variance. It has four options provided by SAP –
VOM – Previous Month – If this option is assigned to a FIFO Method, system will check the FIFO
value calculated against book value of material as on last date of the previous month (MM
Period). For e.g. If the previous period is October and current period is November, then System
will check the FIFO value calculated (say $100) with the Material Book Value as on October 31
(say $95), and display/post the variance of $ 5.

VVM – Month before Last – Using this option means System will check the FIFO value
calculated ($100) with the Material Book Value as on September 30 (say $97), and
display/post the variance of $ 3.

GJE – Previous Year – Using this option means System will check the FIFO value calculated
($100) with the Material Book Value as on October 31 last year (say $90), and display/post the
variance of $ 10.

CUR – Current – Using this option means System will check the FIFO value calculated ($100)
with the Material Book Value as on FIFO run date (say $99), and display/post the variance of $
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1.

5.     Con gure FIFO Valuation Areas (De ning Base Year)

SPRO>IMG> Material Management> Valuation and Account Assignment> Balance Sheet Valuation
Procedures Con gure LIFO/FIFO Methods> FIFO> Con gure FIFO Valuation Areas

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With the above ve steps, con guration is complete to allow system to run Balance Sheet Inventory
Valuation on FIFO Basis.

Now, from end-user point of view, three transaction codes needs to be executed to complete the FIFO run
during Month-end –

1.     MRF4 – FIFO Valuation: Flag Materials –

Logistics> Materials Management> Valuation> Balance Sheet Valuation> FIFO Valuation> Prepare> Select
Materials
Executing this transaction code will ag the materials for getting picked in FIFO run. User can restrict the run
for speci c materials/company codes/plants etc. Material Codes which are not agged for FIFO will not be
considered for FIFO Valuation Run.

Note – Make sure to tick the Update “Material Master and FIFO Index Table” option. Without ticking this,
nothing will happen.

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2.     MRF3 – FIFO Valuation: Create Document Extract –

Logistics> Materials Management> Valuation> Balance Sheet Valuation> FIFO Valuation> Prepare>
Create Document Extract
This step will allow system to select the transactions to be considered for FIFO Valuation. This selection is
based on the FIFO method de ned (OMWP)(Single/Monthly receipts tick) and the movement types
de ned as FIFO relevant (OMW4)
The output will show the Movements in the materials included/excluded while drafting the document
extract for FIFO run.

Note – Ensure ticking Update Receipt Data. Otherwise nothing will get selected for FIFO run.

3.     MRF1 – Execute FIFO Valuation –

This is the main step where user can select –

Whether any nancial postings should be made or only report display is needed.
Lowest Value Principle needs to be considered or not.
FIFO Price tables to be updated or not.
Material Master data to be updated with the FIFO price or not.

These above decisions are purely business requirement based.

The output of this step will display the material wise variance (Book Value and Calculated FIFO Value) and
GL Account wise variance as well.

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This concludes the entire FIFO Valuation Run which can help you revalue the inventory on FIFO Basis in the
Financial Statements without touching the MM module. Further, it can be put to use for displaying the
impact of change in accounting policies wherein a shift fromFIFO to MAP is made by any organisation.

Feel free to provide your ratings/comments/remarks for improvement of this document.

Regards

Arjun Malviya

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9 Comments

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Former Member

November 30, 2015 at 10:03 am

Excellent document. Keep it up!!

Like (0)

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Former Member

December 13, 2015 at 12:43 pm

I read every word, the document is very useful. Thank you for sharing.

Like (0)

Former Member

May 17, 2016 at 1:05 am

Hi,

Nice document. Thanks for sharing your knowledge.

Regards

Karthi

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Former Member | Post author

May 23, 2016 at 7:11 pm

Thanks Karteek…

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Ranu Eugene

September 27, 2016 at 6:24 pm

Hi Arjun,

Very nice document with detailed steps and screen shots.

Keep up your good work.

Regards

Eugene

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Former Member | Post author

September 27, 2016 at 6:40 pm

Thanks for your kind words, Ranu…
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Regards

Arjun

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Former Member

April 5, 2018 at 10:27 am

Hi,

Please let me know when raw materials issue to consumption that will    be on MAP or FIFO method.

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Abdullah Galal

January 15, 2019 at 10:29 pm

Awesome document, thank you

Like (0)

Nitya Narayanan

February 10, 2019 at 9:56 am

Thanks a lot for the document. Is it possible to post the FIFO inventory valuation only in leading or non
leading ledger?

Like (0)

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