In countries with high inflation, the company’s financials often require adjustments to reflect the impact of inflation. Because fixed assets are long-term assets, they need revaluation based on an inflation index.

SAP provides functionality to revalue fixed assets based on an inflation index at a stipulated revaluation frequency (monthly, half-yearly, or annual). To make your SAP system ready for inflation-based revaluation, several configuration tasks need to be done. I explain the configuration steps, master data setup, and the business process for inflation-based revaluation.

To explain the configuration for inflation-based revaluation, I use an example of a chart of depreciation 1MX (for Mexico).

For my example, a chart of depreciation 1MX (for Mexico) is configured for explaining inflation-based revaluation. To complete this configuration, execute transaction code OAOB and follow IMG menu path Accounting  > Asset Accounting > Organizational Structures > Assign Chart of Depreciation to Company Code . This action displays the screen shown in Figure 1. In this screen, a fixed asset for company code 6000 fixed assets is used for explaining SAP system transactions and master data setup.

Figure 1

Assignment of the chart of depreciation to a company code

As shown in Figure 1, company code 6000 has been assigned to chart of depreciation 1MX. You can see charts of depreciation 1CL and 1VE created for Chile and Venezuela, respectively, where inflation-based revaluation is also required.

Configuration Steps

To enable your SAP system for inflation-based revaluation, you need to complete these steps:

1. Maintain a revaluation area
2. Maintain posting rules for the revaluation area
3. Maintain posting variants
4. Maintain the inflation index
5. Maintain the time base and exposure to the inflation variant
6. Maintain period control methods
7. Maintain the revaluation key
8. Assign the revaluation key to asset classes
9. Maintain inflation methods
10. Assign the inflation method to a company code

To maintain a revaluation area, follow menu path Financial Accounting > Asset Accounting > Special Valuation > Revaluation of Fixed Assets > Revaluation for Balance Sheet > Inflation Accounting > Revaluation Areas > Maintain Revaluation Areas.

The depreciation area that is used for revaluation purposes is called the revaluation area. Figure 2 shows depreciation areas created for chart of depreciation 1MX. In this screen, in my example, depreciation areas 3 and 4 are revaluation areas. Area 1 is a book depreciation area that holds asset values stemming from all asset transactions except revaluation.  Area 3 is required to record inflation-based revaluation. SAP recommends that you create a second area, 4 (which is just a reporting depreciation area and displays the total of areas 1 and 3). This area is called a derived depreciation area. Therefore, area 4 is needed to display the final value of the asset upon revaluation.

Figure 2

Depreciation areas configured for the chart of depreciation 1MX

Select depreciation area 3 and click the details icon  or double-click depreciation area 3 to display the configuration options for the area 3. Figure 3 shows the configuration of depreciation area 3. Depreciation area 3 is created to book the revaluation separately while book depreciation area 1 records with original acquisition values. Because depreciation area 3 is created solely to record revaluation, it is called the revaluation area. In the Posting in G/L field in the Define Depreciation Areas section, select Area Posts in Realtime from the drop-down list of options. Select the Real Depreciation Area check box.

Figure 3

Configuration of depreciation area 3

In the Value Maintenance section, go to the Revaluation field and select * All Values Allowed from the drop-down list of options. In the Revaluation ord.dep and Net book value fields, select * All Values Allowed from the drop-down list of options. Click the save icon to save your entries.

Figure 4 shows depreciation area 4 configured to display total asset values (i.e., the total of the values in depreciation area 1 [acquisition value] and depreciation area 3 [revaluation value]). If you assume that a fixed asset is purchased for MXN 1000 and additional increments of MXN 100 due to revaluation, then book area 1 shows an asset value of 1000 and revaluation area 3 shows MXN 100, while area 4 shows MXN 1100 (the total of areas 1 and 3).

Figure 4

Configuration of revaluation area 4

Figures 4 and 5 show configuration of revaluation area 4. The configuration required for revaluation area 4 is to deselect the Real Depreciation Area check box (refer back to Figure 3). Deselecting this box means that area 4 is a derived depreciation area in which depreciation is calculated based on two or more real depreciation areas using a calculation formula. Figure 5 shows the settings for the formula that is used to calculate values for depreciation area 4.

Figure 5

Configuration of the formula to calculate values for depreciation area 4

Figure 5 is the same configuration screen as the one shown in Figure 4. Figure 5 is the lower part of depreciation area 4. Because you need area 4 to show the total of area 1 and area 3 values, the formula in Figure 5 is + positive in the fields under the Dep. area sign for areas 1 and 3.

Additionally, the revaluation area 3 needs to be configured to record revaluation on acquisition value, or revaluation on depreciation, or both. To configure area 3 to record revaluation on acquisition and depreciation, follow menu path Financial Accounting > Asset Accounting > Special Valuation > Revaluation of Fixed Assets > Revaluation for Balance Sheet > Inflation Accounting > Revaluation Areas > Define What Revaluation Amount to Record. This path takes you to Figure 6. In this screen select the RevlAPC and RevlDep check boxes for Ar. (area) 03. Click the save icon.

Figure 6

Configuration for recording revaluation both on acquisition and depreciation

The next task is to configure posting rules for company code and revaluation area 3, which means the frequency at which the system posts the revaluation amounts from any given revaluation area to the general ledger. When the depreciation run is executed, the SAP system posts revaluation amounts to the general ledger along with the depreciation amounts. I explain the detail of postings of depreciation and revaluation to the general ledger later.

To configure a posting rule, follow menu path Financial Accounting > Asset Accounting > Special Valuation > Revaluation of Fixed Assets > Revaluation for Balance Sheet > Inflation Accounting > Revaluation Area > Maintain Posting Rules (Figure 7). Select company code 6000 by placing your cursor on this code and clicking your mouse. Figure 7 shows that company code 6000 is selected (highlighted) for posting the rules configuration.

Figure 7

Posting rules configuration for company code 6000

After selecting company code 6000, click the Posting rules folder under Company code selection as shown in Figure 7. This action displays the screen shown in Figure 8.

Figure 8

Configuration of posting rules depreciation areas for company code 6000

Select area 03 and click the details icon or double-click area 03 to open the screen shown in Figure 9. In the Period and method section, select the Monthly posting radio button. In the Other posting settings, select the Post revaluation check box. Click the save icon.

Figure 9

Posting rules configuration for revaluation area 03

After you configure revaluation areas 03 and 04, the next activity is to configure the system for calculating revaluation. The first task for inflation-based revaluation calculation configuration is to configure posting variant RE. (In my example I named the variant RE for revaluation). The posting variant defines the possible posting dates on which the revaluation program can be run. Usually, one posting variant suffices. However, some assets need to be revaluated at different intervals (i.e., one set of assets needs to be revaluated monthly, while the other assets need to be revaluated quarterly, and a separate posting variant needs to be configured for each group).

To configure posting variant RE, follow menu path Financial Accounting > Asset Accounting > Special Valuation > Revaluation of Fixed Assets > Revaluation for Balance Sheet > Inflation Accounting > Maintain Posting Variants. This path takes you to the screen shown in Figure 10. Click the New Entries button and then enter RE in the Posting variant field and Regular posting variant as a description. Click the Values folder and on the lower right side of the screen, enter values in the fields under the Year, Month, and Day column headings as shown in Figure 10.  Click the save icon to save the posting variant RE.

Figure 10

Configure posting variant RE

After you configure the posting variant, you need to configure the inflation index. The inflation index is the basis for revaluation. To configure the inflation index, follow menu path Financial Accounting > Asset Accounting > Special Valuation > Revaluation of Fixed Assets > Revaluation for Balance Sheet > Inflation Accounting > Maintain Inflation Index. Figure 11 shows four inflation indices and the INMX inflation index configured for explanation of inflation-based revaluation.

Figure 11

Inflation index INMX configuration

Inflation index configuration consists of format, active version, and number of decimal places for index. There are three options for index formats: Accumulated (123,456,789), Percentage (1.23456%), and Coefficient (1.234567). Specify the version and number of decimal places for index values (last column). The option as in the Comp…. column selected for the inflation index indicates that the index is a composite index. Usually, if a weighted average of two or more indices is required to calculate index value, then the composite inflation index option is selected.

After you configure the header data of the INMX index, click the Versions folder. Because version 1 is created for index INMX, version details display as shown in Figure 12.

Figure 12

Version 1 inflation index INMX

Select the version and double-click the Values folder to enter the inflation index. INMX inflation index values are specified for the first eight months of the year 2012 for this example as shown in Figure 13. Index values for INMX are specified in percentages, and the system itself calculates the accumulated values based on the percentage specified.

Figure 13

Inflation index values for INMX index

Configuring a TBE to the inflation variant is done to determine the interval at which inflation-based revaluation should happen (i.e., monthly, quarterly, half-yearly, annually). It also determines which period’s index needs to be considered for the specific inflation revaluation run.

To assign a TBE to an inflation variant and to a posting period variant, follow menu path Financial Accounting > Asset Accounting > Special Valuation > Revaluation of Fixed Assets > Revaluation for Balance Sheet > Inflation Accounting > Maintain Time Base and Exposure to Inflation Variant. This action opens the screen shown in Figure 14. Select the Time Base and Exposure folder. For my example, assign the TBE to inflation variants TR and RE to posting period variant RE. Click the save icon to save your data.

Figure 14

Assign a TBE to an inflation variant

Figures 15 and 16 show configuration of TBE to inflation variants RE and TR. To display the screen shown in Figure 15, select the RE variant in Figure 14 and double-click the Intervals folder.

Figure 15

Configure the TBE to inflation variant RE

In Figure 15, the dates on the left side are defaulting from the posting period variant RE. This means those dates are the last dates of the interval for which revaluation needs to be calculated based on the index maintained for that interval. On the right side of Figure 15, dates for TBE for inflation variant RE are specified. The posting period dates (the dates on the left side) determine the date range for the period for which revaluation is executed, whereas the TBE variant dates (the dates on the right side) determine the period of inflation index. Therefore, for the TBE RE, assets acquired in January 2012 will not be revaluated during the revaluation run on January 31, 2012, because the revaluation for inflation is run for January 2012 and the relative period index is also for January 2012.

Figure 16 shows another TBE configured to the inflation variant that is set up to revalue a fixed asset by taking the previous period’s inflation index into account. To display this screen, select the TR variant in Figure 14 and double-click the Intervals folder.  If you use the TR TBE for the inflation variant, the inflation revaluation run for January 2012 would consider assets posted in January 2012 as the December 2011 inflation index considered for revaluation of assets. Therefore, based on the specific requirement for revaluation, you can configure the TBE to the inflation variant.

Figure 16

Configure the TBE to the inflation variant TR

Another significance of the TBE variant is the period in which the revaluation program can be executed. For TBE variants RE and TR, the check boxes under the Post column are selected for all periods. This means that the revaluation program has to be executed at the end of each period. However, if the revaluation program needs to run half-yearly (i.e., June and December), then select the Post check boxes for only June and December and deselect all other periods.

After the TBE to inflation variants are configured, the period control method for revaluation can be configured. The period control method assigns TBE variants to different asset transactions, such as acquisition, retirement, and transfer in the following year. If the revaluation requirement differs based on the type of asset transaction, then the suitable TBE variant needs to be configured and assigned to the respective transaction in period control method configuration.

For this article, TBE variants RE and TR are assigned to all types of transactions for the period control methods RE and TR, respectively. To configure period control method RE, follow menu path Financial Accounting > Asset Accounting > Special Valuation > Revaluation of Fixed Assets > Revaluation for Balance Sheet > Inflation Accounting > Maintain Period Control Methods. This action opens the screen shown in Figure 17. Populate the fields as shown in Figure 17.

Figure 17

The period control method

The posting variant, inflation index, TBE variant, and period control methods are building blocks of inflation-based asset revaluation. As these building blocks are configured, the inflation method and revaluation key are configured. This configuration integrates these separate building blocks.

The inflation index, posting variant, and TBE variant are assigned to the inflation method. Multiple inflation methods can be configured for a country code, but only one of the inflation methods configured can be assigned to the company code. The inflation method also activates the inflation-based revaluation for the company code to which it is assigned. Transaction types are also assigned to the inflation method. Transaction types classify the business transactions related to assets. Transaction types also determine how the SAP system processes those transactions. SAP provides standard transaction types 850, 851, 855, and 856, all of which suffice for the purposes of most of the revaluation requirements.

In my example, I configure the inflation method INMX for country MX (Mexico) and assign it to company code 6000. To complete this configuration, follow menu path Financial Accounting > Asset Accounting > Special Valuation > Revaluation of Fixed Assets > Revaluation for Balance Sheet > Inflation Accounting > Inflation Methods > Maintain Inflation Methods.

This action opens the screen shown in Figure 18. In this screen I assign inflation index INMX, posting variant RE, and TBE variant RE to inflation method INMX. To do this, populate the fields shown in Figure 18.

Figure 18

Inflation method INMX

To assign inflation method INMX to company code 6000, follow menu path Financial Accounting > Asset Accounting > Special Valuation > Revaluation of Fixed Assets > Revaluation for Balance Sheet > Inflation Accounting > Inflation Methods >Assign Inflation Methods to Company Codes. This path takes you to Figure 19. Populate the fields as shown in Figure 19 and click the save icon.

Figure 19

Assignment of inflation method INMX to company code 6000

The inflation method determines the way revaluation should happen at the level of the company code while the revaluation key is configured to establish the revaluation mechanism for individual assets. The inflation method is assigned to the company code, while the revaluation key is assigned to individual assets. The revaluation key consists of various building blocks, such as the inflation index, period control method, and TBE variant. For example, if a different inflation index is required for a specific category for assets, the different inflation index can be assigned to the revaluation key for those assets instead of the general inflation index of the inflation method. In addition, the revaluation key also determines the base value of acquisition and depreciation on which revaluation should be calculated.

To configure revaluation key INMX, follow menu path Financial Accounting > Asset Accounting > Special Valuation > Revaluation of Fixed Assets > Revaluation for Balance Sheet > Inflation Accounting > Revaluation Key > Maintain Revaluation Key. This path takes you to Figure 20.

Figure 20

Configure revaluation key INMX

In Figure 20, enter INMX in the fields under the Rev. Key and Index columns. Enter RE in the fields under the Method and Time Base columns. In the fields under Base (APC [acquisition and production cost]) and Base (Dpn [depreciation]), enter 01 for the acquisition value and base depreciation values, respectively. Click the save icon to save your entries.

Revaluation keys are assigned to the asset class so that the revaluation key defaults in the asset created with the asset class. In my example, I assign the revaluation key with the asset classes for chart of depreciation 1MX. To do this, follow menu path Financial Accounting > Asset Accounting > Special Valuation > Revaluation of Fixed Assets > Revaluation for Balance Sheet > Inflation Accounting > Revaluation Key >Assign Revaluation Key to the Asset Classes.

In the screen that appears (Figure 21), enter 1MX in the Chart of dep. (chart of depreciation) field. After you specify 1MX as the chart of depreciation, asset classes appear on the left side (grayed). You can configure a revaluation key to be defaulted on the assets created for that asset class. In my example, I configure a default revaluation key for asset classes 2000-3200 as shown in Figure 21. Click the save icon to save this configuration.

Figure 21

Assign revaluation key INMX assignment to various asset classes

The last configuration step is to configure account assignment for revaluation of APC, current year depreciation, and previous year depreciation. To complete this configuration, follow menu path Financial Accounting > Asset Accounting > Special Valuation > Revaluation of Fixed Assets > Revaluation for Balance Sheet > Inflation Accounting >Account Determination > Specify Accounts for Revaluation for APC.

This path takes you to Figure 22. For my example, assign an account for revaluation of acquisition and production cost for asset class 2000 (i.e., the account determination is 20000). To complete this step, expand the Chart of Accounts and Account Determination folders. Select the Revaluation APC folder. Because the revaluation area is 3, account assignment for revaluation is configured for area 3. Click the save icon to save your data.

Figure 22

Account assignment for APC revaluation

Similarly, Figures 23 and 24 show revaluation for the current year and previous year depreciations, respectively. To configure revaluation for the current year, follow menu path Financial Accounting > Asset Accounting > Special Valuation > Revaluation of Fixed Assets > Revaluation for Balance Sheet > Inflation Accounting > Account Determination > Specify Accounts for Revaluation for Current Year Depreciation. This path takes you to the screen shown in Figure 23. For my example, expand the Chart of Accounts and Account Determination folders and then click the Ordinary Depreciation folder.  Populate the Reval. accumulated ord. depreciation and Offsetting accnt: Reval ordinary deprc. fields as shown in Figure 23.

Figure 23

Account assignment for current year’s revaluation

To configure revaluation for the previous year, follow menu path Financial Accounting > Asset Accounting > Special Valuation > Revaluation of Fixed Assets > Revaluation for Balance Sheet > Inflation Accounting > Account Determination > Specify Accounts for Revaluation for Previous Year Depreciation. This path takes you to Figure 24. For my example, expand the Chart of Accounts and Account Determination folders. Select the Revaluation of Depreciation folder. Populate the Reval. accumulated ord. depreciation and Offsetting accnt: Reval. ordinary deprc. fields as shown. Click the save icon to save your entries.

Figure 24

Account assignment for revaluation of previous year’s depreciation

With account assignment configuration, the entire requisite configuration for inflation-based asset revaluation is completed. Now, in order to revaluate the asset, the revaluation key needs to be assigned to the asset master data.

To create a new asset for asset class 2000 for company code 6000, execute transaction code AS01. This action opens the screen shown in Figure 25. Click the Deprec. Areas (depreciation areas) tab.

Figure 25

The Deprec. Areas tab

Double-click depreciation area 03 (Figure 26).

Figure 26

Master data for depreciation areas

In the next screen (Figure 27), click the Data for revaluation button.

Figure 27

Depreciation area 03 settings of asset master data

This action opens a screen that displays the revaluation-related fields for depreciation area 03 for this asset (Figure 28). Revaluation Key INMX is defaulting from the configuration of revaluation key assignment to asset classes (as shown Figure 21). Click the Continue button. Asset number 2005 is now created.

Figure 28

Revaluation-related fields for depreciation area 03

After asset 2005 is created, it needs to be posted for an acquisition cost of MXN 10,000 as of March 7, 2012, as shown in Figure 29 (vendor invoice posted for asset acquisition). To complete this step, execute transaction code FB03. In the Keys for Entry View section of the Display Document initial screen (not shown), enter 1900000002 in the Document Number field, 6,000 in the Company Code field, and 2012 in the Fiscal Year field. Click the green check mark icon to display the document (Figure 29). Notice that initial acquisition value of the asset is MXN 10,000.

Figure 29

Asset acquisition for MXN 10,000

Asset 2005’s values can be analyzed prior to and after the revaluation run for all three depreciation areas. To do this, execute transaction code AW01n. This action opens the screen in Figure 30 in which book area 01 records original acquisition value and associated depreciation, while revaluation area 03 records revaluation. Area 04 displays the total of book area 01 and revaluation area 03 as explained earlier in this article.

Figure 30

Acquisition and depreciation values for asset 2005 for depreciation areas 01, 03, and 04 prior to an inflation revaluation run

Figure 30 displays the asset values prior to revaluation run for all three depreciation areas of interest (book area 01, revaluation area 03, and area 04). The asset 2004 values for area 03 are zeroes as no revaluation is posted. For area 01, the asset acquisition value is MXN 10,000, and accumulated depreciation value is MXN 2000.

Now, you need to execute inflation-based revaluation for asset 2005. To do this, execute transaction code J1AI and follow menu path Financial Accounting > Fixed Asset > Periodic Processing > Revaluation for Balance Sheet > Inflation. This action takes you to the screen shown in Figure 31. Populate the Company Code, Main Asset Number, Fiscal Year, and Asset value date (revaluation run date) fields as shown in Figure 31. Click the execute icon to run the program.

Figure 31

Inflation-based revaluation for asset 2005 for March 31, 2012

The revaluation run is executed first for the asset value date of March 31, 2012, as shown in Figure 31. Because the TBE variant RE is assigned to revaluation key INMX, there should not be any revaluation for the asset 2005 (as explained for the TBE variant). Figure 32 shows the report output of the inflation-based revaluation run that states that no revaluation was posted for period 003/2012 for asset 2005.

Figure 32

Output of inflation-based revaluation for asset 2005 for March 31, 2012

Now, you need to execute inflation-based revaluation for the next interval (i.e., as of the asset value date of April 30, 2012). First, execute the revaluation run in test mode. To do this, execute transaction code J1AI and follow menu path Financial Accounting > Fixed Asset > Periodic Processing > Revaluation for Balance Sheet > Inflation.

In the screen that appears (Figure 33), select the Test Run check box. Click the execute icon to run the program.

Figure 33

Inflation-based revaluation for asset 2005 for April 30, 2012

Figure 34 contains the output of the inflation revaluation run. This report states that the acquisition value is revalued by 100.50 MXN and depreciation is revalued by 5.50 MXN.

Figure 34

Output of inflation-based revaluation for asset 2005 for April 30, 2012

Areas 34 and 35 are parallel currency areas for area 3. Depreciation areas 34 and 35 are created for tracking valuation in parallel currency USD and can be ignored for this example. SAP always posts zero amounts to parallel currency areas such as areas 34 and 35 as inflation is specific to the local currency. However, parallel currency areas like 34 and 35 need to be created as area 3 posts to the general ledger. 

Inflation-based revaluation is executed in update mode, so asset values are updated with the revaluation amount. To run in update mode, deselect the Test Run check box (refer back to Figure 33).

Figure 35 shows asset values after the inflation revaluation run. This screen shows the revaluation amount of MXN 100.50 and 5.50, respectively for depreciation area 03.

Figure 35

Acquisition and depreciation values for asset 2005 for depreciation areas 01, 03, and 04 prior to the inflation revaluation run

How the system calculated the revaluation amount:

1. Acquisition cost of asset 2005: MXN 10,000
2. Inflation index (accumulated format) for March 2012: 103,060,706
3. Inflation index (accumulated format) for April 2012: 104,096,466
4. Revaluation for APC: (acquisition cost X {April Index- March Index})- acquisition cost. When you apply this formula, revaluation to APC comes about MXN 100.50 as calculated by the system.
5. Revaluation for depreciation: (accumulated depreciation until March 2012 X {April Index- March index})- acquisition cost. When you apply this formula, revaluation to APC comes about MXN 5.50 as calculated by the system.