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1) Scope of Foreign Currency Valuation

Generally, currency valuations covers the following
a) Customer open items, Vendor open items and General Ledger Open Line items, Managed in foreign
currency.
b) Other General Ledger Balance Sheet Accounts Managed in Foreign Currency, but not flagged as open
item management accounts.

2) Valuation Methods

The valuation method basically contains the relevant parameters in the valuation process. In this step
we make all the specifications necessary for the SAP valuation program to run.
You set up Valuation methods by going through the menu path below:
IMG — Financial Accounting (New) — General Ledger Accounting (New) — Periodic Processing –
Valuate — Define Valuation Methods
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You can create your own valuation method by clicking on New Entries, or copy and existing one by
clicking on copy, or use a system provided one.

Click on New Entries

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a) Valuation Method: Enter a key that will represent your valuation method. This is a maximum of four
character alpha-numeric key.

b) Lowest value principle: flagging this indicator means that the items are valued according to the
lowest value principle. Meaning that the valuation result is only taking in to account, if the valuation
difference between the local currency amount (of the foreign currency transaction) at the original
document creation and the newly revalued amount is negative, that is valuation run resulted in a loss.
With this procedure, the valuation is calculated per item total, and items with same invoice reference
are viewed together.

c) Strict lowest value principle: flagging this indicator means the valuation is only displayed if, the new
valuation result has a greater “devaluation and/or a greater revaluation” than the previous valuation.
Just like the above, the valuation is calculated per item total, and items with the same invoice reference
are viewed together.
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d) Always evaluate: Flagging this indicator means all foreign currency balances and foreign currency
open item are valuated and the revaluation result is booked irrespective of what the result is (loss or
gain).

e) Revaluate Only: If this indicator is selected, it means that the system only takes the valuation run into
consideration if it results in a gain. That is “Revalue Only – Do Not Devalue”. This is the opposite of
the “Lowest value principle”.

f) Group Vendors: Here Vendor accounts are categorized into groups, and during the valuation process
the group is then viewed as a whole and the same conditions apply to them.

g) Group Customers: Here Customer accounts are categorized into groups, and during the valuation
process the group is then viewed as a whole and the same conditions apply to them.

h) G/L Valuation Group: Here General Ledger accounts are categorized into groups, and during the
valuation process the group is then viewed as a whole and the same conditions apply to them.

i) Balance Valuation: If this indicator is selected, open items are balanced per account or group and
currency. The balance is then valuated and the valuation difference is posted as an expense or revenue.
If you do not select this indicator, the open items are summarized and valuated per reference number. If
there is no reference number, each line item is valuated individually.

j) Post per line item: If this indicator is selected, revaluation is done at line item level. Meaning that a
line item is generated for each valuated item in the valuation posting as well as in the adjustment
account. If not selected, the valuation results are posted in a summarized form

k) Document Type: Enter the document type that the revaluation postings will use.

l) Exchange Rate Type: Select your exchange rate type for the revaluation process. Normally the
standard exchange rate type “M” (Standard translation at average rate) is used, although you can use
any custom exchange rate type you defined.

3) Valuation Areas

By defining your valuation areas, you can report different valuation approaches and post to different
accounts. In this IMG activity, you define your valuation areas for your closing operations. The valuation
method we defined above will be assigned to our valuation area we will define in this step.

Follow the menu path below to define your valuation area (s).

IMG — Financial Accounting (New) — General Ledger Accounting (New) — Periodic Processing –
Valuate — Define Valuation Areas
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Click on new entries or copy and existing valuation area.

Specify a key to represent your valuation area, assign your valuation method to it and select a suitable
currency type (we select the company code currency).

4) Assignment of Accounting Principle to Ledger Group

In this IMG activity, we assign our adopted accounting principle to our ledger group.

Follow the menu path below to Assign Accounting Principle to Ledger Group.

IMG — Financial Accounting (New) — General Ledger Accounting (New) — Periodic Processing –
Valuate — Check Assignment of Accounting Principle to Ledger Group
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Click on New Entries.

Enter your adopted accounting principle (in our example GAAP) and select a target ledger (in our
example leading ledger-0L).
Save your entries.

5) Assign Accounting Principle to your Valuation Areas

In this IMG activity, you assign your adopted accounting principles to your valuation areas.

Follow the menu path below to assign your adopted accounting principles to your valuation areas.

IMG — Financial Accounting (New) — General Ledger Accounting (New) — Periodic Processing –
Valuate — Assign Valuation Areas and Accounting Principles
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Click on new entries.

Select your defined valuation area and your adopted accounting principle, and save your entries.

6) Activate Delta Logic

The valuation process can take two forms:

a) The so called “Gross Method”, by which the program compares the exchange rate existing on the
date of the original document creation to the exchange rate prevailing on the Key Date, and any
difference booked as exchange difference. With this approach valuation results are reset on the first day
of the following period (Key Date+1)
b) The Delta Logic: with this approach valuation results are not reversed on key date +1. The delta logic
ensures that the system does not execute any reversal postings for the valuation postings in the
following period. The next valuation run takes the difference between the last valuation date and
the current key date.

If it is required for you to use the Delta valuation Logic, activate it through the following the menu path
below:

IMG — Financial Accounting (New) — General Ledger Accounting (New) — Periodic Processing –
Valuate — Activate Delta Logic
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Select you valuation area (in our case Z1)

To activate the delta logic for the valuation area, set the indicator for the delta logic.

7) Prepare Automatic Postings for Foreign Currency Valuation

In this activity, we define how, and to which accounts, the valuation results are posted. The system
reads the settings done here to determine how to automatically Post Exchange rate differences when
valuating open items and foreign currency balances.
In the same configuration step we can also define the accounts for realized exchange rate differences
during open item clearing.

You can also define here the Exchange Rate Key to which you assign the gain and loss accounts for
posting any exchange rate differences that occur during valuation. The exchange rate keys you define
here are entered in the master records of the G/L Accounts that you want to valuate.

Follow the menu path below to configure automatic postings for Foreign Currency Valuation.

IMG — Financial Accounting (New) — General Ledger Accounting (New) — Periodic Processing –
Valuate — Foreign Currency Valuation — Prepare Automatic Postings for Foreign Currency Valuation
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a) Double click on “Exchange rate difference using exchange rate key” to define the exchange rate key
and assign the gain and loss G/L accounts to it, for the posting any exchange rate differences.
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Click on Create, and make the relevant entries.

Save your entries.

The next step is to assign to the relevant G/Ls (in the G/L Master data) an Exchange Rate Key created
above. That assignment means that any exchange rate difference from transactions on this G/L will be
posted to these accounts as configured above.

Use transaction FS00 to do this assignment.

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b) Double click on “Exchange Rate Dif.: Open Items/GL Acct” to maintain settings for automatic Post of
Exchange rate differences when valuating open items and foreign currency balances, or use transaction
OB09.
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Click on new entries.

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Maintain your entries and save.

Exchange rate difference realized: This is an exchange rate difference which results at the point of
clearing an open item (example through incoming or outgoing payments). Maintain here the P&L
account that the realized differences are to be posted. Note that this can be a single account, or a
different account for gain and another for loss. The offsetting postings are done on the relevant G/L
account.

Valuate: You maintain here the accounts to be posted to incase of unrealized exchange
differences arising from the valuation process. When you valuate open items in foreign currency, the
exchange rate difference determined is posted as an unrealized exchange rate difference.

Note: the Field Balance Sheet Adjustment Account contains the G/L Account that is posted to instead of
the account itself that is being evaluated. This is necessary to maintain the original value of this account,
because valuation differences are unrealized differences. The offsetting postings go to the relevant P&L
Accounts.

c) Double click on “Payment difference for Altern. Currency” to maintain settings for automatic Posting
of Payment differences.
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Maintain your settings and save.

8) Foreign Currency Valuation Run

We can now run the currency valuation transaction after the configuration settings above.
Go through the menu path below:

Accounting – Financial Accounting — General Ledger — Periodic Processing — Closing – Valuate —

Foreign Currency Valuation (New).

Or use transaction FAGL_FC_VAL

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9) Resetting Foreign Currency Valuation Run

If for whatever reason you want to undo/reset the valuation postings you have made, you can do so.
What you just need to do is to run the valuation program again entering the same selection parameters
as the valuation run, but this time flagging the field reset, as below. What this does is to recreate the
status before the valuation run, that is, all valuations posted are set to zero by an inverse posting.
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