Operative Valuation Area (SAP Library - Loans Management (FS-CML))

Operative Valuation Area

Definition

Within the operative valuation area you can value foreign currency loans. Foreign currency loans are all loans given or taken for which the contract currency is different to the local currency (balance sheet/company code currency).

Use

Foreign currency valuation for a (balance sheet) key date

You can use the function for valuing foreign currency loans to value the remaining capital for loan positions as at any key date (including dates in the past). You can run the valuation for both loans given and loans taken.

For each of the selected loans, the system determines the acquisition value, book value and current value in contract currency and local currency. As a result of exchange rate fluctuations, the book value in the system differs the current value in local currency, producing an unrealized rate gain or loss (write-up or write-down amount). The system generates and posts a flow record for this unrealized gain or loss

The way the amount to be written up/down is calculated depends on the valuation principle you have chosen (such as Key date value appr./depr.). A valuation method comprises the valuation method and the rules for the write-up/write-down.

To value loan positions, you must choose the one-step valuation method in Customizing (IMG: Treasury Management ® Basic Functions ® Accounting ® Valuation ® Define One-Step Valuation Principles). You use this method because only one value (the exchange rate) is used to calculate the write-up or write-down, and not several (as would be the case for foreign securities valuations where both the exchange rate and security price are taken into account).

You then define the valuation rules. You can control the level of the valuation gains and losses in various ways (for example, no valuation loss, valuation loss up until key date value, valuation gain up until key date value, valuation gain up until purchase price). You can define several valuation principles using the different combinations.

Note

A reduction in the position due to a revaluation (write-down) represents a rate loss for loans given and a rate gain for loans taken. An increase in the position due to a revaluation (write-up) represents a rate gain for loans given and a rate loss for loans taken.

Calculation of rate gain/loss for position outflows

In the case of a position outflow (such as a repayment), the system automatically calculates the rate gain or loss for foreign currency loans when it generates the cash flow. It determines the realized gain or loss by calculating the difference between the book value in local currency (proportionate to the position outflow) and the value of the actual position outflow in local currency. This gain or loss then appears in the cash flow.

If a foreign currency valuation was carried out before the position outflow, the system not only calculates the rate gain or loss, but also the translation amount (in other words, the valuations already carried out for position in proportion to the position outflow). In the cash flow, the system generates flow records for both the rate gain or loss and the translation amount.

The "effective" rate gain or loss on the original acquisition value is calculated by adding the translation amount to the rate gain.

Example

Valuation of a loan given

Time sequence	Data	Explanation
1.) Loan position as at MMDDYY	AUD 100 / EUR 58	Book value in foreign and local currency
2.) Valuation as at MMDDYY Current exchange rate Book value - current value = valuation result	EUR 0.5 / AUD AUD 100 / EUR 58 - AUD 100 / EUR 50 = AUD 0 / EUR 8	The valuation leads to a reduction in the loan position (write-down); there is an unrealized rate loss amounting to 0 $/8 EUR.
3.) Valuation as at M+1DDYY Current exchange rate Book value - current value = valuation result	EUR 0,60 / AUD AUD 100 / EUR 50 - AUD 100 / EUR 60 = AUD 0 / EUR -10	The valuation leads to a reduction in the loan position (write-down); there is an unrealized rate loss amounting to 0 $/10 EUR.

Valuation of a loan taken

Time sequence	Data	Explanation
1.) Loan position as at MMDDYY	AUD 100 / EUR 58	Book value in foreign and local currency
2.) Valuation as at MMDDYY Current exchange rate Book value - current value = valuation result	EUR 0.5 / AUD AUD 100 / EUR 58 - AUD 100 / EUR 50 = AUD 0 / EUR 8	The valuation leads to a reduction in the loan position (write-down); there is an unrealized rate gain amounting to 0 $/8 EUR.
3.) Valuation as at M+1DDYY Current exchange rate Book value - current value = valuation result	EUR 0,60 / AUD AUD 100 / EUR 50 - AUD 100 / EUR 60 = AUD 0 / EUR -10	The valuation leads to a reduction in the loan position (write-down); there is an unrealized rate gain amounting to 0 $/10 EUR.

Valuation followed by position outflow (loan given)

Time sequence	Data	Explanation
1.) Loan position as at MMDDYY	AUD 100 / EUR 58	Book value in foreign and local currency
2.) Valuation as at MMDDYY Current exchange rate Book value - current value = valuation result	EUR 0.5 / AUD AUD 100 / EUR 58 - AUD 100 / EUR 50 = AUD 0 / EUR 8	The valuation leads to a reduction in the loan position (write-down); there is an unrealized rate loss amounting to 0 $/8 EUR.
3.) Repayment as at M+1DDYY Current exchange rate Proportionate: Book value - position outflow = rate gain/loss	AUD 20 EUR 0.60 / AUD AUD 20 / EUR 10 - AUD 20 / EUR 12 = AUD 0 / EUR -2	The repayment at the current exchange rate leads to a position outflow of AUD 20 / EUR 12. The realized rate gain on the book value is EUR 2.
4.) Balance of the valuations already made for the entire postion Proportion of valuation balance for the position outflow of AUD 20.	AUD 0 / EUR 8 AUD 0 / EUR 1.60	The translation amount, which represents a rate loss, amounts to 1.60 EUR.

Valuation followed by position outflow (loan taken)

Time sequence	Data	Explanation
1.) Loan position as at MMDDYY	AUD 100 / EUR 58	Book value in foreign and local currency
2.) Valuation as at MMDDYY Current exchange rate Book value - current value = valuation result	EUR 0,50 / AUD AUD 100 / EUR 58 - AUD 100 / EUR 50 = AUD 0 / EUR 8	The valuation leads to a reduction in the loan position (write-down); there is an unrealized rate gain amounting to 0 $/8 EUR.
3.) Repayment as at M+1DDYY Current exchange rate Proportionate: Book value - position outflow = rate gain/loss	AUD 20 EUR 0.60 / AUD AUD 20 / EUR 10 - AUD 20 / EUR 12 = AUD 0 / EUR -2	The repayment at the current exchange rate leads to a position outflow of AUD 20 / EUR 12. The realized rate loss on the book value is EUR 2.
4.) Balance of the valuations already made for the entire postion Proportion of valuation balance for the position outflow of 20 $.	AUD 0 / EUR 8 AUD 0 / EUR 1.60	The translation amount, which represents a rate gain, amounts to 1.60 EUR.

Note

You can calculate the effective rate gain/loss (= rate gain or loss for the position outflow in relation to the acquisition value) in two ways:

Calculate the acquisition value in local currency (exchange rate EUR 58 / AUD). The proportionate acquisition value in relation to the position outflow of AUD 20 is:
AUD 100 / EUR 58 à AUD 20 / EUR 11.60.

The position outflow at the current exchange rate (EUR 0.60 /AUD ) is AUD 20 /EUR 12.

The difference between the position outflow in local currency and the acquisition value in local currency (proportionate to the position outflow) is an effective gain/loss amounting to EUR 0.40:
EUR 12 - EUR 11.60 = EUR 0.40.

The total balance of the rate gain or loss and the translation amount produces an effective rate gain/loss amounting to EUR 0.40:
EUR 2 - EUR 1.60 = EUR 0.40.