Automatic Equity Capital Reclassification

Use

You can use this report to automatically reclassify the equity capital balances of all or some of the selected hedging relationships.

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You plan to purchase a raw material in a foreign currency. You want to hedge the foreign currency risk of this transaction with a derivative (forward exchange transaction or currency option). To do this, in Hedge Accounting you must define a hedging relationship - a cash flow hedge - between the planned transaction and the derivative. If the hedging relationship is effective, the profit or loss of the derivative is entered in the equity capital balance (according to IAS 39 95). The raw material purchased is recognized as an asset in the balance sheet. Note:

Cash flow hedges are hedging instruments that are used to hedge cash flow fluctuations.

Effective hedging relationships balance the fluctuations at a fixed amount.

According to IAS 39.95, after the transaction and hedging relationship have been concluded, the following options are available for handling equity capital in hedging relationships:

You can reclassify gains and losses entered in the equity capital account as expense or revenue. The reclassification occurs in the same period in which the asset is included in the profit and loss statement.

You can follow gains and losses entered in the equity capital account when you calculate the acquisition costs of the asset item.

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SAPprovides the first reclassification option (1.) to help you manage equity from hedge relationships.

Manual and Automatic Equity Capital Reclassification:

If the raw material is used in only one finished product, the asset item is posted to the profit and loss statement in the period in which the finished product is sold. In this case, use Manual Equity Capital Reclassification

If the raw material is used in more than one finished product, the asset item may be transferred to the profit and loss statement over multiple periods. (Example: The planned transaction is an exposure (purchase) with the hedging instrument "cash flow hedge"). You determine the period for the hedge item using the parameters Start of Reclassification and End of Reclassification . Over this period, the automatic equity reclassification function transfers the equity from the hedging relationship to the profit and loss statement on a linear basis.

Development of Automatic Equity Capital from Hedging Relationship

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Activities

Enter the required data for the following:

General Selections

Hedge Accounting for Exposures

Hedging Instrument

Reclassification Parameters (Key Date)

Choose test run or update run.

The system creates a log of the automatic equity capital reclassification, and provides an overview of the linear distribution of the equity capital you want to reclassify.

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Manual reclassification is not taken into account during this period.

To reverse reclassification, execute the report program Reversal of Automatic Equity Capital Reclassification (transactionTHM59).