Welcome to part three of the blog serie on the Advanced Valuation Processes as announced in the Releaseblog SAP S/4HANA Cloud 2202 for Finance . Today I would like to cover the topic of Discounting for long-term assets and liabilities.
To be compliant with the IFRS regulation, when determining the transaction price, an entity shall adjust the promised amount taking into consideration the time value of money, if the transaction contains a considerable financing component. This is the case when the timing of the payment agreed by the parties provides the customer with a significant benefit of financing the transfer of goods or services to the customer.
In this case, a discount rate shall be applied to the amount due in the future to calculate the net present value as if this would be a separate financing transaction. The effects of financing (interest revenues) also need to be shown separately in the financial statements.
You use the Post Discounting for Long-Term Assets and Liabilities job to calculate the net present value of long term assets and liabilities, post the initial discount and interest revenue and perform the monthly discount unwinding with the respective postings in the General Ledger.
Figure 1: Example of calculation of net present value
Figure 2: Example of calculation of net present value with postings
Calculate and automatically post net present value, initial discount and interest income.
Post automatically periodic adjustments of discount (unwinding the discount) and interest income.
Use different discounting rules based on aging increments and interest rates.
Leverage reporting capabilities based on the usage of semantic tags.
A pre-requisite to use the new advanced valuation processes is to activate advanced valuation (SSUI 103315).
Figure 3: Configuration Process Overview
Firstly, you define the aging increments (SSCUI 103049). SAP S/4HANA Cloud comes with two predefined aging increments for short-term and long-term aging increments.
Secondly, you define the interest indicators, which are later assigned to the discounting rules (SSCUI 103513). For each interest indicator you chose an interest calculation type, for example net present value.
Then you define the interest rates (SSCUI 102258) for each interest indicator. You can enter a debit or credit interest rate for each interest indicator. Please, consider that here the interest rates are defined in percentage per annum.
As next step you define the discounting rules (SSCUI 104799) that contain the discounting steps to be carried out. In each step you assign
the semantic tags to be assigned to the discounting rule
the interest indicator to each aging increment
the GL accounts to be used to post revenue or expense adjustments as well as interest income and interest expense.
Finally, you assign the discounting rule to the accounting principle (SSCUI 104800).
To run / schedule the process you use the Schedule General Ledger Jobs app from were you select the Post Discounting for Long-Term Assets and Liabilities job template.
The final postings then can be displayed in the Manage Journal Entry App as well as in the Financial Statement reporting such as the Balance Sheet/Income Statement App.