Reserve for Bad Debts
(RBD) 
Purpose
The Reserve for Bad Debts (RBD) component includes options for modeling both individual value adjustments (IVA) and flat-rate value adjustments (FVA).
Reserve for Bad Debts (RBD) helps you calculate individual value adjustments and flat-rate value adjustments using a defined set of rules. It also allows you to update these individual value adjustments automatically.
Reserve for Bad Debts (RBD) has an online connection to BaFin, the German Federal Financial Supervisory Authority. Any value adjustment changes with a legal requirement to be reported are forwarded directly to regulatory reporting via this connection.
This component is a separate price component. If you would like to use the Reserve for Bad Debts (RBD) component in your company, contact your account manager.
Implementation Considerations
To implement an effective credit risk management and accounting policy at your bank, you need to be able to identify value adjustment requirements at an early stage and have an extensive reporting system at your disposal that covers both your internal and external information requirements.
Integration
The Reserve for Bad Debts (RBD) component is implemented in the form of an independent subsidiary ledger with separate master and transaction data management. It is integrated in SAP Loans Management (FS CML), SAP Deposits Management (SAP AM), and SAP Financial Accounting (SAP FI) as shown below (further systems will be added in subsequent releases).
· External systems: At present, the Reserve for Bad Debts (RBD) component only supports adjustments for loans managed on the asset/debit side in SAP Loans Management (FS CML) and for accounts managed in SAP Deposits Management (SAP AM). Other source systems are being considered for future releases.
The following extractors are programs that extract defined data from the source systems (FS CML and SAP AM) for use in the Reserve for Bad Debts (RBD) component.
· Master data extractor: Program for extracting RBD-relevant data, such as currency and contract partner data or account data.
· Transaction data extractor: Program for extracting the business volume data and effective capital or balance.
· Object data extractor: Program for extracting RBD-relevant object data and encumbrances for the assigned contracts, with a link to the SAP Loans Management object management function. When connected to SAP CMS, this program extracts collateral agreements and assets.
· Collateral data extractor: Program for extracting RBD-relevant data for other collaterals, such as life insurance policies.
· RBD component: The data extracted from the source systems by the extractors is located and stored here. This data can then be prepared for reports. The Public Interface is a function module provided for add-ons and customer developments.
· Posting engine: Postings created in the Reserve for Bad Debts (RBD) component are forwarded to the general ledger in real time.
· Risk class re-extractor: Program in the Reserve for Bad Debts (RBD) component that updates the "Risk Class" field in the loan contract following an individual value adjustment.
· Financial Accounting: Interface to SAP FI accounting component.
Scope of Functions
The Reserve for Bad Debts (RBD) component supports all the business processes in SAP that arise in conjunction with value adjustments.
As described under
Constraints, risk monitoring is only implemented to a limited extent in
the RBD component.
The provision for risks in the RBD component contains functions for the
initial appropriation of reserves and position management for the value
adjustments. Value adjustment postings are supported in terms of initial
appropriation of reserves and subsequent reserves in the case of further
outgoing payments and changes to the risk.
Risk realization covers internal and external write-offs, including claim
renunciations. The postings for losses on receivables support the clearing or
usage of the reserves for value adjustment and write-off of the outstanding
receivable. This results in the adjusted revenues and positions.
The Reserves for Bad Debts (RBD) component distinguishes between individual value adjustments (IVA) and flat-rate value adjustments (FVA).
Individual value adjustments are handled separately for each of the different types of loan element (effective capital, interest and charges) in SAP Loans Management (FS CML), whereas value adjustments for SAP Deposits Management (SAP AM) data are based purely on the balance.
Flat-rate value
adjustment for SAP Loans Management is divided into FVA according to Basel II
and FVA with risk indicator.
FVA according to Basel II calculates value adjustments for interest and
charges in arrears with a definable age (for example, older than 90 days).
FVA with risk indicator calculates percentage value adjustments for the
overall balance of the effective capital, interest in arrears, and charges in
arrears in accordance with a value adjustment indicator.
Flat-rate value adjustment for SAP Deposits Management calculates value adjustments on the basis of a risk indicator. Using this indicator, the Reserve for Bad Debts (RBD) component identifies the SAP AM accounts that require value adjustment and adjusts them all by a percentage defined in Customizing.
Constraints
The Reserve for Bad Debts (RBD) component does not take into consideration any general evaluations for identifying value adjustment cases defined in the external systems; there is no program for analyzing risks. An evaluation report for loans in arrears that have not yet been adjusted is, however, provided for SAP Loans Management.
The system does not take collateral into consideration automatically when generating planned records. However, the link to the SAP Collateral Management System (FS CMS) provides additional options to the existing functions for displaying object and collateral data from the Loans Management (FS CML) component. You can now display asset data, collateral agreements and collateral valuations from the Collateral Management System on the Objects and Collateral tab pages in the RBD component.
The automatic update functions are not supported for the following CML processes because the effect of these business transactions on the value-adjusted items can vary:
· Borrower change
· Object change
· Collateral change
The Reserve for Bad Debt (RBD) component contains the components Account Management, Information System, Position Monitoring – Flat-Rate Value Adjustment , and Position Management – Individual Value Adjustment These components and functions are described in detail in the relevant documentation.
Business Processes for IVA and FVA
The following sections contain examples of individual value adjustment and flat-rate individual value adjustment processes to clarify the posting logic of the RBD component and illustrate how it generates its value adjustment proposals.
Business Processes for Individual Value Adjustment (IVA)
Prerequisites and Constraints
In the following example it is assumed that loans from SAP Loans Management are not settled using SAP Deposits Management.
Step 1: The Scenario
The risk management department decides to create a value adjustment portfolio (RBD account) for the business partner described in detail below and to conduct an Individual Value Adjustment .
Key date: January 1, 2005
Business Partner Information
Two loan contracts (SAP Loans Management – FS CML)
· Contract 1: Receivables
¡ Capital: $ 200 000
¡ Outstanding interest: $ 10 000
¡ Outstanding charges: $ 250
· Contract 2: Receivables
¡ Capital: $ 100 000
¡ Outstanding interest: $ 5000
¡ Outstanding charges: $ 150
· A checking account (SAP Deposits Management – FS AM)
¡ Account 1: Debit balance
¡ Balance: - $ 6000
Step 2: The Decision to Make Provisions for Risks
Creating an RBD account at the partner aggregation level. Individual value adjustments are generated and posted using the difference procedure (delta method).
Step 3: Initial Appropriation of Reserves
Calculating the value adjustment based on the receivables in SAP Loans Management and the balance in SAP Deposits Management on the key date January 1, 2005.
SAP Loans Management (FS CML) |
SAP Deposits Management (FS AM) |
Reserve for Bad Debts (FS RBD) |
Accounting (FI) |
||
Loan contract 1 |
Checking account 1 |
RBD account at partner level |
Balance sheet accounts |
Profit and loss accounts |
|
Capital $ 200 000 |
Balance $ -6000 |
Reserve appropriation: IVA for capital |
$ 200 000 |
Receivable $ 306 000 (debit side) |
IVA write-off $ 306 000 (debit side) |
Interest $ 10 000 |
|
Reserve appropriation: IVA for capital |
$ 100 000 |
Receivable $ 15 000 (debit side) |
IVA write-off $ 15 000 (debit side) |
Charges $ 250 |
Reserve appropriation: IVA for capital |
$ 6000 |
Receivable $ 400 (debit side) |
IVA write-off $ 400 (debit side) |
|
Loan contract 2 |
Reserve appropriation: IVA for interest |
$ 10 000 |
|
||
Capital $ 100 000 |
Reserve appropriation: IVA for interest |
$ 5000 |
IVA position $ 306 000 (credit side) |
Revenue from IVA clearing |
|
Interest $ 5000 |
Reserve appropriation: IVA for charges |
$ 250 |
IVA position $ 15 000 (credit side) |
|
|
Charges $ 150 |
Reserve appropriation: IVA for charges |
$ 150 |
IVA position $ 400 (credit side) |
||
Step 4: Updating the Appropriation of Reserves
Updating the RBD account to reflect further debit entries and balance changes that have taken place in the relevant source systems by the key date July 31, 2005.
The debit entry run in FS CML determines additional interest and charges for both loan contracts and FS AM account settlement results in an increased negative balance.
SAP Loans Management (FS CML) |
SAP Deposits Management (FS AM) |
Reserve for Bad Debts (FS RBD) |
Accounting (FI) |
||
Loan contract 1 |
Checking account 1 |
RBD account at partner level |
Balance sheet accounts |
Profit and loss accounts |
|
Capital $ 200 000 |
Balance $ -7000 |
Reserve appropriation: IVA for capital |
$ 1000 |
Receivable $ 306 000 (debit side) $ 1000 (debit side) |
IVA write-off $ 306 000 (debit side) $ 1000 (debit side) |
Interest $ 11 000 |
|
Reserve appropriation: IVA for interest |
$ 1000 |
Receivable $ 15 000 (debit side) $ 2000 (debit side) |
IVA write-off $ 15 000 (debit side) $ 2000 (debit side) |
Charges $ 300 |
Reserve appropriation: IVA for interest |
$ 1000 |
Receivable $ 400 (debit side) $ 100 (debit side) |
IVA write-off $ 400 (debit side) $ 100 (debit side) |
|
Loan contract 2 |
Reserve appropriation: IVA for charges |
$ 50 |
|
||
Capital $ 100 000 |
Reserve appropriation: IVA for charges |
$ 50 |
IVA position $ 306 000 (credit side) $ 1000 (credit side) |
Revenue from IVA clearing |
|
Interest $ 6000 |
|
IVA position $ 15 000 (credit side) $ 2000 (credit side) |
|
||
Charges $ 200 |
IVA position $ 400 (credit side) $ 100 (credit side) |
||||
Step 5, Variant A: Resetting the Value Adjustment Postings
Updating the RBD account to reflect incoming payments and balance changes that have taken place in the relevant source systems by the key date December 31, 2005.
Incoming payments in FS CML clear some of the interest and charges for both loan contracts (open items are closed) and the negative balance of the FS AM account is also reduced by incoming payments.
As the incoming payments and the value adjustments were posted in the same fiscal year, the value adjustment postings are simply reset. If the RBD value adjustment postings and the source system payment postings belong to different fiscal years, the value adjustment postings have to be cleared (see Variant B).
SAP Loans Management (FS CML) |
SAP Deposits Management (FS AM) |
Reserve for Bad Debts (FS RBD) |
Accounting (FI) |
||
Loan contract 1 |
Checking account 1 |
RBD account at partner level |
Balance sheet accounts |
Profit and loss accounts |
|
Capital $ 200 000 |
Balance $ -5000 |
Resetting IVA for capital |
$ 2000 |
Receivable $ 306 000 (debit side) $ 1000 (debit side) $ 2000 (credit side) |
IVA write-off $ 306 000 (debit side) $ 1000 (debit side) $ 2000 (credit side) |
Interest $ 10 000 |
|
Resetting IVA for interest |
$ 1000 |
Receivable $ 15 000 (debit side) $ 2000 (debit side) $ 2000 (credit side) |
IVA write-off $ 15 000 (debit side) $ 2000 (debit side) $ 2000 (credit side) |
Charges $ 250 |
Resetting IVA for interest |
$ 1000 |
Receivable $ 400 (debit side) $ 100 (debit side) $ 100 (credit side) |
IVA write-off $ 400 (debit side) $ 100 (debit side) $ 100 (credit side) |
|
Loan contract 2 |
Resetting IVA for charges |
$ 50 |
|
||
Capital $ 100 000 |
Resetting IVA for charges |
$ 50 |
IVA position $ 306 000 (credit side) $ 1000 (credit side) $ 2000 (debit side) |
Revenue from IVA clearing |
|
Interest $ 5000 |
|
IVA position $ 15 000 (credit side) $ 2000 (credit side) $ 2000 (debit side) |
|
||
Charges $ 150 |
IVA position $ 400 (credit side) $ 100 (credit side) $ 100 (debit side) |
||||
Step 5, Variant B: Clearing the Value Adjustment Postings
Updating the RBD account to reflect incoming payments and balance changes that have taken place in the relevant source systems by the key date January 31, 2006.
Incoming payments in FS CML clear some of the interest and charges for both loan contracts (open items are closed) and the negative balance of the FS AM account is also reduced by incoming payments.
RBD value adjustment postings that affect the balance sheet cannot simply be reset but must be cleared. Value adjustments affect the balance sheet if they are posted in a different fiscal year from the incoming payments that are to form the basis of the value adjustment correction. If the value adjustment postings and the incoming payment postings belong to the same fiscal year, the value adjustment postings can simply be reset (see Variant A).
The following example is based on Step 4: Updating the Appropriation of Reserves.
SAP Loans Management (FS CML) |
SAP Deposits Management (FS AM) |
Reserve for Bad Debts (FS RBD) |
Accounting (FI) |
||
Loan contract 1 |
Checking account 1 |
RBD account at partner level |
Balance sheet accounts |
Profit and loss accounts |
|
Capital $ 200 000 |
Balance $ -5000 |
Clearing IVA for capital |
$ 2000 |
Receivable $ 306 000 (debit side) $ 1000 (debit side) $ 2000 (credit side) |
|
Interest $ 10 000 |
|
Clearing IVA for interest |
$ 1000 |
Receivable $ 15 000 (debit side) $ 2000 (debit side) $ 2000 (credit side) |
|
Charges $ 250 |
Clearing IVA for interest |
$ 1000 |
Receivable $ 400 (debit side) $ 100 (debit side) $ 100 (credit side) |
||
Loan contract 2 |
Clearing IVA for charges |
$ 50 |
|
||
Capital $ 100 000 |
Clearing IVA for charges |
$ 50 |
IVA position $ 306 000 (credit side) $ 1000 (credit side) $ 2000 (debit side) |
Revenue from IVA clearing $ 2000 (credit side) |
|
Interest $ 5000 |
|
IVA position $ 15 000 (credit side) $ 2000 (credit side) $ 2000 (debit side) |
Revenue from IVA clearing $ 2000 (credit side) |
||
Charges $ 150 |
IVA position $ 400 (credit side) $ 100 (credit side) $ 100 (debit side) |
Revenue from IVA clearing $ 100 (credit side) |
|||
Step 6: Loss on Receivables
General Information Regarding Loss on Receivables
In the event of loss on receivables the irrecoverable debt is written off. The following constellations are possible:
· Provision for risks matches or exceeds the loss on receivables (posted in same fiscal year)
¡ Provision for risks is reset and direct write-off is posted for the total amount of the loss
· Provision for risks is less than the loss on receivables (posted in same fiscal year)
¡ Provision for risks is reset and direct write-off is posted for the total amount of the loss
· Provision for risks matches or exceeds the loss on receivables (loss not posted until following fiscal year)
¡ Provision for risks is used up to the total amount of the loss and the remaining risk provision is cleared
· Provision for risks is less than the loss on receivables (loss not posted until following fiscal year)
¡ Provision for risks from the previous fiscal year is used up (and risk provision made in the current fiscal year is reset, if necessary) and direct write-off is posted for the remaining loss
In principle, a hybrid of constellations 2 and 4 above is also possible.
On the key date December 31, 2006 the business partner (the main borrower) defaults permanently on the loan. A write-off of the debt is triggered in the source system SAP Loans Management.
Loss on receivables postings/write-offs in SAP Deposits Management are not taken into account in the current release of the RBD component, so the FS AM account is excluded from this example.
The next time an update takes place in the RBD component the value adjustments that have already been posted are reset and the debt is written off.
Information on the Loss on Receivables Resulting from the Default of the Business Partner
· Two loan contracts (SAP Loans Management)
¡ Contract 1: Receivables
§ Capital: $ 200 000 Write-off of outstanding receivables to the value of $ 200 000
§ Outstanding interest: $ 10 000 Write-off of interest to the value of $ 10 000
§ Outstanding charges: $ 250 Write-off of charges to the value of $ 250
¡ Contract 2: Receivables
§ Capital: $ 100 000 Write-off of outstanding receivables to the value of $ 100 000
§ Outstanding interest: $ 5000 Write-off of interest to the value of $ 5000
§ Outstanding charges: $ 150 Write-off of charges to the value of $ 150
· Receivables - FI:
§ Capital: $ 305 000
§ Interest: $ 15 000
§ Charges: $ 400
· Value adjustments - RBD component:
§ Capital: $ 305 000
§ Interest: $ 15 000
§ Charges: $ 400
The amounts calculated in this example are not based on the examples in Steps 1-5 above and it is assumed that the FI and RBD positions quoted above are posted in the same fiscal year (2006).
SAP Loans Management (FS CML) |
Reserve for Bad Debts (FS RBD) |
Accounting (FI) |
||
Loan contract 1 |
RBD account at partner level |
Balance sheet accounts |
Profit and loss accounts |
|
Capital $ 0 |
Resetting IVA for capital |
$ 200 000 |
Receivable $ 305 000 (debit side) $ 300 000 (credit side) |
IVA write-off $ 305 000 (debit side) $ 300 000 (credit side) |
Resetting IVA for capital |
$ 100 000 |
|||
Interest $ 0 |
Resetting IVA for interest |
$ 10 000 |
Receivable $ 15 000 (debit side) $ 15 000 (credit side) |
IVA write-off $ 15 000 (debit side) $ 15 000 (credit side) |
Charges $ 0 |
Resetting IVA for interest |
$ 5000 |
Receivable $ 400 (debit side) $ 400 (credit side) |
IVA write-off $ 400 (debit side) $ 400 (credit side) |
|
Resetting IVA for charges |
$ 250 |
|
IVA direct write-off $ 300 000 (debit side) |
|
Resetting IVA for charges |
$ 150 |
IVA direct write-off $ 15 000 (debit side) |
|
Loan contract 2 |
|
IVA direct write-off $ 400 (debit side) |
||
Capital $ 0 |
Direct write-off of capital |
$ 200 000 |
IVA position $ 305 000 (credit side) $ 300 000 (debit side) |
IVA clearing account $ 300 000 (debit side) $ 300 000 (credit side) |
Direct write-off of capital |
$ 100 000 |
|||
Interest $ 0 |
Direct write-off of interest |
$ 10 000 |
IVA position $ 15 000 (credit side) $ 15 000 (debit side) |
IVA clearing account $ 15 000 (debit side) $ 15 000 (credit side) |
Direct write-off of interest |
$ 5000 |
|||
Charges $ 0 |
Direct write-off of charges |
$ 250 |
IVA position $ 400 (credit side) $ 400 (debit side) |
IVA clearing account $ 400 (debit side) $ 400 (credit side) |
Direct write-off of charges |
$ 150 |
|||
Business Processes for Flat-Rate Individual Value Adjustment (FIVA)
Prerequisites and Constraints
The function for filling the temporary value adjustment pool (RBD-GATE) must reside in the customer namespace.
The selection criteria for updating the RBD account using the FVA with risk indicator function (and thereby the assignment of contracts to this RBD account) are fixed and cannot be changed in the life cycle of the RBD account or used to calculate flat-rate value adjustments in any other RBD account. This means, in effect, that these criteria are "assigned" permanently to the RBD account. In the following example this means that an FVA report assigns the RBD account "Catchment Area: North" those contracts that have an area code between 1 and 9. This interval can be narrowed down further using the contract/account numbers.
Step 1: The Scenario
The risk management department decides to create a value adjustment portfolio (RBD account) for the loan contracts and checking accounts described in detail below and to conduct a flat-rate individual value adjustment (FIVA) with risk indicator.
The risk indicator can be configured to your own requirements. The corresponding value adjustment percentages are defined in Customizing.
All contracts/accounts that have been made available in RBD-GATE by the value adjustment pool filling report and that match the selection criteria defined in the FVA report are combined in one RBD portfolio and adjusted.
Key date: January 1, 2005
Information on the FVA RBD Account with the Selection Criterion "Catchment Area: North"
· Two loan contracts (SAP Loans Management)
¡ Contract 1: Receivables
§ Capital: $ 200 000
§ Outstanding interest: $ 10 000
§ Outstanding charges: $ 250
§ Risk indicator: 2 (20% value adjustment defined in Customizing)
¡ Contract 2: Receivables
§ Capital: $ 100 000
§ Outstanding interest: $ 5000
§ Outstanding charges: $ 150
§ Risk indicator: 1 (10% value adjustment defined in Customizing)
· Two checking accounts (SAP Deposits Management)
¡ Account 1: Debit balance
§ Balance: - $ 6000
§ Risk indicator: 2 (20% value adjustment defined in Customizing)
¡ Account 2: Debit balance
§ Balance: - $ 2000
§ Risk indicator: 1 (10% value adjustment defined in Customizing)
Step 2: The Decision to Make Provisions for Risks
Creating an RBD account with account type FVA with risk indicator. Flat-rate individual value adjustments are generated and posted using the difference procedure.
If the reset procedure is used (this can be defined in Customizing), the value adjustments in the RBD component are automatically reset the next day. With the reset procedure it is particularly important to take the fiscal year change into account, as a reserve appropriation posted on December 31 will be reset on January 1 of the following fiscal year.
Step 3: Initial Appropriation of Reserves
Calculating the value adjustment based on the risk indicators of the receivables in SAP Loans Management and the balances in SAP Deposits Management on the key date January 31, 2005. You schedule the report to run in the background as best suits your requirements, for example on the last day of each month. Before the calculation can take place, the RBD-GATE value adjustment pool filling report must already have run and made the relevant contracts/accounts including receivables/balances available for the calculation.
SAP Loans Management (FS CML) |
SAP Deposits Management (FS AM) |
Reserve for Bad Debts (FS RBD) |
Accounting (FI) |
||
Loan contract 1 |
Checking account 1 |
RBD account at partner level |
Balance sheet accounts |
Profit and loss accounts |
|
Capital $ 200 000 |
Balance $ -6000 |
Reserve appropriation: FVA for capital |
$ 40 000 |
Receivable $ 308 000 (debit side) |
FVA write-off $ 51 400 (debit side) |
Interest $ 10 000 |
Risk indicator 2 |
Reserve appropriation: FVA for capital |
$ 10 000 |
Receivable $ 15 000 (debit side) |
FVA write-off $ 2500 (debit side) |
Charges $ 250 |
|
Reserve appropriation: FVA for capital |
$ 1200 |
Receivable $ 400 (debit side) |
FVA write-off $ 65 (debit side) |
Risk indicator 2 |
Reserve appropriation: FVA for capital |
$ 200 |
|
||
Loan contract 2 |
Checking account 2 |
Reserve appropriation: FVA for interest |
$ 2000 |
||
Capital $ 100 000 |
Balance $ -2000 |
FVA position $ 51 400 (credit side) |
Revenue from FVA clearing |
||
Interest $ 5000 |
Risk indicator 1 |
Reserve appropriation: FVA for charges |
$ 50 |
FVA position $ 2500 (credit side) |
|
Charges $ 150 |
|
Reserve appropriation: FVA for charges |
$ 15 |
FVA position $ 65 (credit side) |
|
Risk indicator 1 |
|
||||
Step 4: Updating the Appropriation of Reserves
Updating the RBD account to reflect changes in receivables/balances that have taken place in the relevant source systems by the key date July 31, 2005.
The debit entry run in FS CML determines additional interest and charges for both loan contracts and FS AM account settlement results in an increased negative balance. These changes are made available in RBD-GATE by the value adjustment pool filling report and then processed by the FVA report.
SAP Loans Management (FS CML) |
SAP Deposits Management (FS AM) |
Reserve for Bad Debts (FS RBD) |
Accounting (FI) |
||
Loan contract 1 |
Checking account 1 |
RBD account at partner level |
Balance sheet accounts |
Profit and loss accounts |
|
Capital $ 200 000 |
Balance $ -7000 |
Reserve appropriation: FVA for capital |
$ 200 |
Receivable $ 308 000 (debit side) $ 1000 (debit side) |
FVA write-off $ 51 400 (debit side) $ 200 (debit side) |
Interest $ 11 000 |
Risk indicator 2 |
Reserve appropriation: FVA for interest |
$ 200 |
Receivable $ 15 000 (debit side) $ 2000 (debit side) |
FVA write-off $ 2500 (debit side) $ 300 (debit side) |
Charges $ 300 |
|
Reserve appropriation: FVA for interest |
$ 100 |
Receivable $ 400 (debit side) $ 100 (debit side) |
FVA write-off $ 65 (debit side) $ 15 (debit side) |
Risk indicator 2 |
Reserve appropriation: FVA for charges |
$ 10 |
|
||
Loan contract 2 |
Checking account 2 |
Reserve appropriation: FVA for charges |
$ 5 |
||
Capital $ 100 000 |
Balance $ -2000 |
|
FVA position $ 51 400 (credit side) $ 200 (credit side) |
Revenue from FVA clearing |
|
Interest $ 6000 |
Risk indicator 1 |
FVA position $ 2500 (credit side) $ 300 (credit side) |
|
||
Charges $ 200 |
|
FVA position $ 65 (credit side) $ 15 (credit side) |
|||
Risk indicator 1 |
|
||||
Step 5: Changing the Risk Indicator
An increase in receivables and in the negative balance in SAP Loans Management and SAP Deposits Management can trigger a change of risk indicator, thereby changing the percentage of the value adjustment. In the following example, the increase in the negative balance of the business partner's checking account generates a revision of the risk indicator from 1 to 2, thereby raising the value adjustment rate to 20%.
This example follows on logically from Step 4 but is not in itself a prerequisite for subsequent steps. Step 6 below follows on from Step 4.
SAP Loans Management (FS CML) |
SAP Deposits Management (FS AM) |
Reserve for Bad Debts (FS RBD) |
Accounting (FI) |
||
Loan contract 1 |
Checking account 1 |
RBD account at partner level |
Balance sheet accounts |
Profit and loss accounts |
|
Capital $ 200 000 |
Balance $ -7000 |
Reserve appropriation: FVA for capital |
$ 600 |
Receivable $ 308 000 (debit side) $ 1000 (debit side) $ 2000 (debit side) |
FVA write-off $ 51 400 (debit side) $ 200 (debit side) $ 600 (debit side) |
Interest $ 11 000 |
Risk indicator 2 |
|
Receivable $ 15 000 (debit side) $ 2000 (debit side) |
FVA write-off $ 2500 (debit side) $ 300 (debit side) |
|
Charges $ 300 |
|
Receivable $ 400 (debit side) $ 100 (debit side) |
FVA write-off $ 65 (debit side) $ 15 (debit side) |
||
Risk indicator 2 |
|
||||
Loan contract 2 |
Checking account 2 |
||||
Capital $ 100 000 |
Balance $ -4000 |
FVA position $ 51 400 (credit side) $ 200 (credit side) $ 600 (credit side) |
Revenue from FVA clearing |
||
Interest $ 6000 |
Risk indicator 2 |
FVA position $ 2500 (credit side) $ 300 (credit side) |
|
||
Charges $ 200 |
|
FVA position $ 65 (credit side) $ 15 (credit side) |
|||
Risk indicator 1 |
|
||||
Step 6, Variant A: Resetting the Value Adjustment Postings
Updating the RBD account by report to reflect incoming payments and balance changes that have taken place in the relevant source systems by the key date December 31, 2005.
Incoming payments in FS CML clear some of the interest and charges for both loan contracts (open items are closed) and the negative balance of the FS AM account is also reduced by incoming payments.
As the incoming payments and the value adjustments were posted in the same fiscal year, the value adjustment postings are simply reset.
If the RBD value adjustment postings and the source system payment postings belong to different fiscal years, the value adjustment postings have to be cleared (see Variant B).
SAP Loans Management (FS CML) |
SAP Deposits Management (FS AM) |
Reserve for Bad Debts (FS RBD) |
Accounting (FI) |
||
Loan contract 1 |
Checking account 1 |
RBD account at partner level |
Balance sheet accounts |
Profit and loss accounts |
|
Capital $ 200 000 |
Balance $ -5000 |
Resetting FVA for capital |
$ 400 |
Receivable $ 308 000 (debit side) $ 1000 (debit side) $ 2000 (credit side) |
FVA write-off $ 51 400 (debit side) $ 200 (debit side) $ 400 (credit side) |
Interest $ 10 000 |
Risk indicator 2 |
Resetting FVA for interest |
$ 200 |
Receivable $ 15 000 (debit side) $ 2000 (debit side) $ 2000 (credit side) |
FVA write-off $ 2500 (debit side) $ 300 (debit side) $ 300 (credit side) |
Charges $ 250 |
|
Resetting FVA for interest |
$ 100 |
Receivable $ 400 (debit side) $ 100 (debit side) $ 100 (credit side) |
FVA write-off $ 65 (debit side) $ 15 (debit side) $ 15 (credit side) |
Risk indicator 2 |
Resetting FVA for charges |
$ 10 |
|
||
Loan contract 2 |
Checking account 2 |
Resetting FVA for charges |
$ 5 |
||
Capital $ 100 000 |
Balance $ -2000 |
|
FVA position $ 51 400 (credit side) $ 200 (credit side) $ 400 (debit side) |
Revenue from FVA clearing |
|
Interest $ 5000 |
Risk indicator 1 |
FVA position $ 2500 (credit side) $ 300 (credit side) $ 300 (debit side) |
|
||
Charges $ 150 |
|
FVA position $ 65 (credit side) $ 15 (credit side) $ 15 (debit side) |
|||
Risk indicator 1 |
|
||||
Step 6, Variant B: Clearing the Value Adjustment Postings
Updating the RBD account by report to reflect incoming payments and balance changes that have taken place in the relevant source systems by the key date January 31, 2006.
Incoming payments in FS CML clear some of the interest and charges for both loan contracts (open items are closed) and the negative balance of the FS AM account is also reduced by incoming payments.
As the incoming payments and the value adjustments were not posted in the same fiscal year, the value adjustment postings must be cleared. If the value adjustment postings and the incoming payment postings belong to the same fiscal year, the value adjustment postings can simply be reset (see Variant A).
SAP Loans Management (FS CML) |
SAP Deposits Management (FS AM) |
Reserve for Bad Debts (FS RBD) |
Accounting (FI) |
||
Loan contract 1 |
Checking account 1 |
RBD account at partner level |
Balance sheet accounts |
Profit and loss accounts |
|
Capital $ 200 000 |
Balance $ -5000 |
Clearing FVA for capital |
$ 400 |
Receivable $ 308 000 (debit side) $ 1000 (debit side) $ 2000 (credit side) |
FVA write-off
|
Interest $ 10 000 |
Risk indicator 2 |
Clearing FVA for interest |
$ 200 |
Receivable $ 15 000 (debit side) $ 2000 (debit side) $ 2000 (credit side) |
|
Charges $ 250 |
|
Clearing FVA for interest |
$ 100 |
Receivable $ 400 (debit side) $ 100 (debit side) $ 100 (credit side) |
|
Risk indicator 2 |
Clearing FVA for charges |
$ 10 |
|
||
Loan contract 2 |
Checking account 2 |
Clearing FVA for charges |
$ 5 |
||
Capital $ 100 000 |
Balance $ -2000 |
|
FVA position $ 51 400 (credit side) $ 200 (credit side) $ 400 (debit side) |
Revenue from FVA clearing $ 400 (credit side) |
|
Interest $ 5000 |
Risk indicator 1 |
FVA position $ 2500 (credit side) $ 300 (credit side) $ 300 (debit side) |
Revenue from FVA clearing $ 300 (credit side) |
||
Charges $ 150 |
|
FVA position $ 65 (credit side) $ 15 (credit side) $ 15 (debit side) |
Revenue from FVA clearing $ 15 (credit side) |
||
Risk indicator 1 |
|
||||
Step 7: Loss on Receivables
General Information Regarding Loss on Receivables
In the event of loss on receivables the irrecoverable debt is written off. The following constellations are possible:
· Provision for risks matches or exceeds the loss on receivables (posted in same fiscal year)
¡ Provision for risks is reset and direct write-off is posted for the total amount of the loss
· Provision for risks is less than the loss on receivables (posted in same fiscal year)
¡ Provision for risks is reset and direct write-off is posted for the total amount of the loss
· Provision for risks matches or exceeds the loss on receivables (loss not posted until following fiscal year)
¡ Provision for risks is used up to the total amount of the loss and the remaining risk provision is cleared
· Provision for risks is less than the loss on receivables (loss not posted until following fiscal year)
¡ Provision for risks from the previous fiscal year is used up (and risk provision made in the current fiscal year is reset, if necessary) and direct write-off is posted for the remaining loss
In principle, a hybrid of constellations 2 and 4 above is also possible.
On the key date February 28, 2006 the business partners (the main borrowers) of the "Catchment Area: North" default permanently on their loan. A write-off of the debt is triggered in the source system SAP Loans Management.
Loss on receivables postings/write-offs in SAP Deposits Management are not taken into account in the current release of the RBD component, so the FS AM account is excluded from this example.
The next time an FVA report is run (update takes place in the RBD component) the value adjustments that have already been posted are reset and the debt is written off.
If the loss on receivables is not written off in the same fiscal year as the provision for risks was made, the RBD component proposes that the provision for risks be used up rather than reset.
The amounts calculated in this example are not based on the examples in Steps 1-6 above and it is assumed that the FI and RBD positions quoted above are posted in the same fiscal year (2006).
Information on the Loss on Receivables Resulting from Defaults on "Catchment Area: North" Loan Contracts
· Two loan contracts (SAP Loans Management)
¡ Contract 1: Receivables
§ Capital: $ 200 000 Write-off of outstanding receivables to the value of $ 200 000
§ Outstanding interest: $ 10 000 Write-off of interest to the value of $ 10 000
§ Outstanding charges: $ 250 Write-off of charges to the value of $ 250
¡ Contract 2: Receivables
§ Capital: $ 100 000 Write-off of outstanding receivables to the value of $ 100 000
§ Outstanding interest: $ 5000 Write-off of interest to the value of $ 5000
§ Outstanding charges: $ 150 Write-off of charges to the value of $ 150
· Receivables - FI:
§ Capital: $ 308 000
§ Interest: $ 15 000
§ Charges: $ 400
· Total value-adjusted amount per flow type group in the RBD component:
§ Capital: $ 51 400
§ Interest: $ 2500
§ Charges: $ 65
The provision for risks is considerably less than the loss on receivables posted in SAP Loans Management.
SAP Loans Management (FS CML) |
Reserve for Bad Debts (FS RBD) |
Accounting (FI) |
||
Loan contract 1 |
RBD account at partner level |
Balance sheet accounts |
Profit and loss accounts |
|
Capital $ 0 |
Resetting FVA for capital |
$ 50 000 |
Receivable $ 308 000 (debit side) $ 300 000 (credit side) |
FVA write-off $ 50 000 (debit side) $ 50 000 (credit side) |
Interest $ 0 |
Resetting FVA for interest |
$ 2500 |
Receivable $ 15 000 (debit side) $ 15 000 (credit side) |
FVA write-off $ 2500 (debit side) $ 2500 (credit side) |
Charges $ 0 |
Resetting FVA for charges |
$ 65 |
Receivable $ 400 (debit side) $ 400 (credit side) |
FVA write-off $ 65 (debit side) $ 65 (credit side) |
|
|
FVA direct write-off $ 300 000 (debit side) |
||
FVA direct write-off $ 15 000 (debit side) |
||||
Loan contract 2 |
|
FVA direct write-off $ 400 (debit side) |
||
Capital $ 0 |
Direct write-off of capital (FVA) |
$ 300 000 |
FVA position $ 51 400 (credit side) $ 50 000 (debit side) |
FVA clearing account $ 300 000 (debit side) $ 300 000 (credit side) |
Interest $ 0 |
Direct write-off of interest (FVA) |
$ 15 000 |
FVA position $ 2500 (credit side) $ 2500 (debit side) |
FVA clearing account $ 15 000 (debit side) $ 15 000 (credit side) |
Charges $ 0 |
Direct write-off of charges (FVA) |
$ 400 |
FVA position $ 65 (credit side) $ 65 (debit side) |
FVA clearing account $ 400 (debit side) $ 400 (credit side) |