Foreign exchange revaluation is an important financial closing procedure as per IAS 21 – The Effects of Changes in Foreign Exchange Rates in order to present true and fair picture of foreign receivables/ payables.
Normally this valuation is posted at the end of period and reversed on the first day of next period. However, there are specific business cases/ local laws prevailing in different countries that allows gain/loss to be part of balance sheet (particularly asset capitalization) instead of charging the whole expense to Profit and Loss Statement. Accordingly, reversal should not be done in this case but rather transferring the gain/loss via cost reclassification of cost to the asset. We are not discussing the mechanism of cost reclassification. We are observing in this blog that how can we achieve the functionality of posting only single entry without any reversal entry on first day of next month.
In SAP , there is a functionality called Delta logic that is suitable to achieve the above requirement. Before having a glance at this functionality and how we can configure this in SAP , we should first understand the business scenario and its relevance to Delta Logic:
Example we have purchased goods/ services from any supplier in 100,000 USD @ PKR 155/ USD on 1st Feb 2021. Invoice remains unpaid until month end on 28th Feb 2021. Exchange rate on month end rose to PKR 160/ USD. Business does not want this exchange rate reversed on first day of next month. Let’s say we have achieved this requirement using Delta Logic of SAP and did not reverse the gain/loss, and invoice remain unpaid until the end of 31st Mar 2021. Now question here comes is that what will be the calculations that system should perform after multiple forex revaluations.?
Once delta logic is activated. System will compare exchange rate of last revaluation run and current revaluation run to identify the differences for posting.
Below is the scenario that system will perform with only delta logic active.
|Date||Transactions||Amount in USD||Exchange Rate||Amount in PKR||Gain/Loss|