on 2021 Aug 18 9:51 AM
Dear colleagues,
We are working on the configuration of the TPM60 and the TPM1 and the interaction of the valuation (via TPM60) and the subsequent journal entries booked via TPM1.
Regarding the valuation and accounting for derivatives, we generally have found solutions to fit our requirements. One issue that we have not yet been able to solve is the following case:
When a derivative, i.e. a swap without hedge accounting, was measured at a negative present value (via TPM60) as of the last measurement date, it is booked to the correct liability account (via TPM1) - BUT when the derivative is measured at a positive present value (via TPM60) on the following measurement date, the TPM1 should only derecognize the liability recognized on the liability account (and ignore the present value >0; no journal entry on any asset account). With the current configuration, TPM1 books the total change in present value to the passive account.
To give you an example:
Present Value t1: - 100 (Correctly booked as a liability on the given liability account)
Present Value t2: +100 (Status quo: Books +200 on the liability account / Required: Should book +100 on the liability account and should not recognize the change in value resulting from the present value >0)
Current configuration for those derivatives contains a Position Management Procedure with the Impairment procedure set as 'managing as a liability position'.
I would really appreciate any hints or further help regarding a potential solution to achieve the correct journal entries for enabling the TPM1 to only recognize and derecognize the change in negative present values as a liability position.
Thank you very much in advance and if any questions arise, feel free to ask.
Anna
Welcome Anna !
Thanks Anna, will look into the info you provided. But if you and business are ok with above solution, you just need to create a new Update Type (without posting) and replace it with the existing Update Type which is used for other Product. This is much simpler solution.
Cheers !
Aditiya
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Hi Aditiya!
Again, thank you so much for your time, I appreciate your input!
I have considered, whether the solution could be that we enable write-ups only up to the amount of the purchase value/initial book value (setting the rule of write-ups for the procedure steps as: write-up to purchase value instead of market value/present value). As swaps mainly show an inital book value = 0, this could limit the write-ups to the cap of 0... but I am not quite sure if that would really work.
Meanwhile we will test your provided solution and try to add an update type that is not relevant to posting. Would be great, if that would work for our test cases.
Thank you very much - looking forward to any further input from your side.
Cheers!
Anna
Hi Anna,
Your approach make sense in theory i.e. write-ups only up to the amount of the purchase value but doing a quick test should further confirm it. Let me know if it worked as expected or you need anything else.
Cheers !
Aditiya
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Hi Anna,
Can you please share the PMP along with Procedure steps screens if possible.
Meanwhile you can explore this :
1. Stop posting for the +tive flows i.e. +tive Present value, system will only calculate but will not post anything.
2. Reset the valuation posting next day, if that works for the business. That way they will see liability posting only on the Key-date.
Cheers !
Adi...
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Hi Adi,
Thank you very much for coming back at my question and already proposing quick solutions. We also thought about blocking the respective flows for posting journal entries - but the flows are also relevant for other products and therefore that would result in further problems..
I will gladly summarize the PMP and the procedure steps (SAP is in our local language, so screens could be a bit difficult):
(1) Position
management type: OTC-Derivative
(2) Transfer
category: Books only on used position components
(3) Procedure Steps:
Only one step in the form of the One-Step Price Valuation Procedure
(Market-to-Market). The one-step price valuation uses the clean present value. The
rules for write-ups/write-offs are: Write-up
to market value/present value and write-off to market value/present
value. Otherwise, no additonal settings
are used in this procedure step (except enabling special write-ups/write-downs
for the manual valuation via TPM74). For the recognition of gains the setting is empty.
(4) liability/asset
position: Right now the setting is 'Managing the position as a liability
position'
(5) Valuation basis
is the book value
I hope the summary works! If any further information are missing, please feel free to ask. Thank you for your time!
Cheers!
Anna
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