Replacement Cost Valuation (SAP Library

Replacement Cost Valuation

Purpose

Prerequisites

Before you can carry out replacement cost valuation, you have to make a number of Customizing settings and maintain your material master records, as follows:

Customizing

Create two valuation types for domestic and imported raw materials respectively.

Create two time base and exposure to inflation variants (TBE variants), again, for domestic and imported raw materials.

Create a posting variant to instruct the replacement cost valuation programs when the half year is over.

Material Master Records

Maintain separate material master records for domestic and imported raw materials using the appropriate:

Valuation types

TBE variants

Revaluation methods

This ensures that domestic and imported materials are revaluated separately and according to the above requirements.

Process Flow

Over the course of the fiscal year, you run the replacement cost valuation programs (first market price determination and then inflation index adjustment) at the end of every posting period. Although Chilean accounting regulations only require you to calculate your materials' replacement costs once every half year, the programs need to run once per posting period.

The process is as follows (for the sake of convenience, the fiscal year is assumed to run from 1 January to 31 December):

At the end of the January posting period, you run the replacement cost valuation programs.

If the market price determination program records a replacement cost for a material, the system sets a hidden flag in the material master that shows that a market price has been determined for this half year (this feature is relevant to Chile only).

All the other materials are covered by the inflation index adjustment program. Domestic materials are revaluated using the previous November's inflation index (this is controlled by the TBE variant). The inflation calculated is thus zero. Imported materials are revaluated using the previous December's exchange rate (this is controlled by another TBE variant). The exchange rate difference is thus zero.

This technique ensures that you revaluate all the materials once a month from a technical viewpoint, as required by the inflation index adjustment program. However, because the inflation indexes and exchange rates are set at the last day of the last half year, no inflation adjustments are posted.

When both programs have run and all materials have been revaluated, the procedure is over for January.

You repeat step 1 for February through May.

Each month, the market price determination program sets the flag for each material that it has covered, and the inflation index adjustment program calculates inflation on all the other materials as being zero.

At the end of June – the first half year – you run the replacement cost valuation programs as usual.

As in the previous posting periods, the market price determination program sets a flag for each material that it has determined a replacement cost for. This means that all the materials for which it has found a replacement cost using the market price method over the last half year have been flagged as revaluated.

Again, the inflation index adjustment program covers all the materials that have not been flagged. This time, however, it revaluates domestic raw materials using the inflation index for May (domestic raw materials being revaluated using the index published for the penultimate month in the half year) – thus calculating the inflation between May and last November. Imported raw materials are adjusted using the exchange rate difference between 31 December and 30 June.

Assuming that you have customized the posting variant, the inflation index program also resets the flag in all of the other material master records, so that they are ready for the next half year – again, this feature is relevant to Chile only.

You continue to run the replacement cost valuation programs at the end of each posting period from July through November, as in steps 1 and 2.

At the end of December, you run the replacement cost valuation programs as in step 3, but this time so that the system also updates the materials' standard or moving average prices.

As at the end of June, the inflation index adjustment program calculates the inflation on all materials that the market price determination program has not yet found any documents for. It also resets all the flags in preparation for the next half year's adjustments and, if you have customized the TBE variant accordingly, posts the changes to all the materials' standard or moving average prices.