This scenario describes the processes used to valuate material stocks and change material prices.

You use lowest value determination to determine a material value less than that shown in your stock accounts. You can either include this lowest value in the balance sheet or use it to revaluate your materials for accounting purposes for the previous or current fiscal year.

• Procedure

• Market price analysis (purchased parts only)
• Inventory costing (products only)
• Range of coverage determination (both)
• Movement rate determination (both)

• Lowest Value Determination Process:

• Lowest value determination is carried out at the start of a new fiscal year and is usually based on data from the last three months of the previous fiscal year.
• You can carry out lowest value determination in one or two steps.
• If you carry it out in one step, you use only one procedure or two procedures simultaneously.
• If you carry it out in two steps, you use the second procedure to devaluate the results from the first procedure.
• For purchased parts, you normally use market price analysis to determine the lowest delivered price. You can then decrease the market price again in per cent by carrying out a range of coverage or movement rate analysis.
• After devaluating raw materials and material components, you can include the lowest value prices for these materials in the lowest value determination for your products via inventory costing. You can then carry out another devaluation using range of coverage or movement rate determination.

• Revaluation in Accounting (optional)
  If you want to revaluate your materials according to the results of the "lowest value" comparison, you create a batch input session from the last program you use in lowest value determination (usually range of coverage or movement rate determination). This batch input session revaluates the materials for a particular key date. You can choose a date from the previous fiscal year as a key date. Depending on the configuration of Customizing, the price change is only effective for the previous year or causes current prices to be adjusted.

• Balance Sheet Creation with Results of Lowest Value Comparison
  Depending on revaluation for accounting purposes, the results of the lowest value comparison are automatically included in balance sheet valuation. If you do not carry out revaluation for the closed fiscal year, you can use the list of your balance values for each G/L account after lowest value determination to carry out the required adjustment postings for the balance sheet manually.

You can also use the LIFO procedure to determine a lower stock value for the balance sheet.

In a market with rising prices, it makes sense that the material stocks that were purchased last are issued first. This means that the lower stock values of the materials that were purchased first are included in the balance sheet.

You can run LIFO valuation for individual materials or for material pools. A LIFO pool consists of materials that are similar in unit of measure and value.

• Procedure

• Quantities LIFO
• Index LIFO

• LIFO Valuation Process

• Identifying Materials
  Materials that are to be included in LIFO valuation must be marked as relevant for LIFO.
  If materials are grouped together in pools, you need to enter the pool number in the material master record as well.

• Creating the Base Layer
  During the first year of LIFO valuation, you have to create a base layer, which includes the closing stock and the stock value of the material or LIFO pool.

• Forming a Data Extract
  If you start using the LIFO procedure during the fiscal year, you must form a data extract from all LIFO-relevant documents.

• Updating Mid-Year
  For all LIFO-relevant transactions/events, receipt and issue quantities and receipt values are registered and updated in monthly layers, which are aggregated and evaluated after the end of the fiscal year.

• LIFO Valuation
  After the end of the fiscal year, annual layers are created for each material or pool if the receipt quantity is greater than the issue quantity. If the issue quantity is greater than the receipt quantity, the previous years’ layers for each material or pool are dissolved, until the base layer is reached.
  There are four different valuation methods used in LIFO valuation:

• Average delivered price for the settlement period
• Average delivered price for part of the year (the first n periods)
• Price on a progressive fill-up basis
• Price from the material master

• Lowest Value Comparison
  After running LIFO valuation, you normally carry out a lowest value comparison. In this procedure, the valuation of the individual annual layers can be reduced again by the lowest values. The lowest net layer values that are determined are included in the balance sheet.

• Displaying the LIFO Results
  On the LIFO results display, the results of the valuation according to inventory accounting and the results of the valuation according to the LIFO procedure are compared. You can choose between gross LIFO values (without ‘lowest value’ comparison) and net LIFO values (with ‘lowest value’ comparison). You can also have a weighted LIFO price updated in the material master (as of 4.5A, you can also make material price changes directly or use a batch input session to make material price changes).

• Creating a Balance Sheet Using the LIFO Results
  The results of LIFO valuation are not automatically included in balance sheet valuation.
  You can therefore use a list of your balance values for each G/L account after LIFO valuation to make the necessary adjustment postings for the balance sheet manually.

You can also use the FIFO procedure to determine a lower stock value for the balance sheet.

In a market with falling prices, it makes sense that the materials that were purchased first are issued first. This means that the lower stock values of the materials that were purchased last are included in the balance sheet.

You run FIFO valuation individually for each material.

• FIFO Valuation Process:

• Identifying Materials
  Materials that are to be included in FIFO valuation must be marked as relevant for FIFO.

• Forming a Data Extract
  If you start using the FIFO procedure during the fiscal year and/or the procedure should work on the basis of single receipts, you have to form a document extract.

• FIFO Valuation Using Lowest Value Comparison
  Actual FIFO valuation takes place after the end of the fiscal year. In contrast to LIFO valuation, you can carry out lowest value comparison in the same step.
  In FIFO valuation, you can also create a batch input session for revaluation of your materials for accounting purposes. The batch input session must be activated for the key date.
  In the list of FIFO results, the results of the valuation according to inventory accounting and the valuation according to the FIFO procedure are compared.

• Creating a Balance Sheet Using the FIFO Results
  Depending on revaluation for accounting purposes, the results of FIFO valuation are automatically included in balance sheet valuation. If you do not carry out revaluation for the closed fiscal year, you can use a list of your balances for each G/L account after FIFO valuation to make the necessary adjustment postings for the balance sheet manually.