Replacement Cost Calculation via Inflation Index (SAP Library

Replacement Cost Calculation via Inflation Index

Purpose

When you execute the Inflation Index Adjustment report, the system calculates the replacement cost of the materials and displays this information in the output list.

Process Flow

You run the Inflation Index Adjustment report.

For each material, the system checks the material inflation class for each of the following values. However, if you have assigned different values directly in the material master, the system uses these instead.

Revaluation method

If the revaluation method is one of the market price methods (lowest, highest, or latest price), the system checks if the materials were already adjusted with the Market Price Determination report. If not, then it revaluates materials using the inflation index.

Time base and exposure to inflation variant (TBE variant)

Inflation index

If you select Provisional run on the report selection screen, the system uses a provisional inflation index. Otherwise, it uses a definitive inflation index.

The system checks the inflation method to determine which indexing method applies.
The system determines the replacement cost. The procedure varies, depending on the original currency of the material:

Local currency

The system checks the TBE variant to determine which inflation indexes are to be applied. Typically, you use the index published for the last day of the month being revaluated. For example, you revaluate your materials for May, and the report accesses index values from 31 May.

Foreign currency

For materials specified in a foreign currency, the system uses the inflation-index dates (defined on the right-hand side) in the TBE variant differently: It converts your local currency to the foreign currency, using the exchange rate on the inflation-index date for the month previous to the revaluation month. Then, it converts the foreign currency to your local currency, using the exchange rate on the inflation-index date for the revaluation month. Finally, the system calculates your material's replacement cost on the basis of the exchange rate difference.

Example 1

You run the Inflation Index Adjustment report for period 5. Your fiscal year runs concurrently to the calendar year, so your revaluation month is May. Your TBE variant (shown only partially) looks like this:

Year	Month	Day	Post	Month	Day	Prev. year
9999	4	30		1	31
9999	5	31		5	31

When you run the report:

First, the system converts your local currency to the foreign currency, using the exchange rate on the inflation-index date for April: The TBE variant states that for April, we use the exchange rate on 31 January.
Secondly, the system converts the foreign currency to your local currency, using the exchange rate on the inflation-index date for May.
Finally, the system determines your material's replacement cost by calculating the exchange rate difference between 31 January and 31 May.

Example 2

In most cases, your TBE variant is defined for inflation adjustments at regular monthly intervals, with inflation-index dates that correspond directly to the revaluation month. Your TBE variant would look like this (again, shown partially):

Year	Month	Day	Post	Month	Day	Prev. year
9999	4	30		4	30
9999	5	31		5	31

In this case, the system determines your material's replacement cost by calculating the exchange rate difference between 30 April and 31 May.

Result

If you run the report in update mode, the system automatically updates the replacement cost in the material master, under Previous period.

In simulation mode, the report only generates an output list. If you choose Create log, the system additionally logs all activities. The system does not update any data in simulation mode.