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Jun 05, 2020 at 02:49 PM

Understanding Material Ledger CKMSTART and impact to financial statements

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We just went live with a Material Ledger implementation in a live SAP (live for 10+ years). The cutover/implementation went fairly well. However, we are having a hard time understanding the reasons for the financial statements (BS and P&L) impact. I have outlined the high-level steps to give an overview of what was done.

We understand that a feature of Material Ledger is the multiple currency valuation. We use the Local currency (which would be the company code currency CNY). We have the Group Currency set as USD (corporate group valuation). Both of these currencies have been setup in our system for many years. It is my understanding that if a company is not using Material Ledger, the valuation would be done in a single currency. In our scenario, this would be the company code currency CNY. Our corporate headquarter base is in the US which corresponds with the Group currency being USD.

1. The week of May 22 through May 31st, the China business unit created the cost estimate and processed through the ‘Marked’ status.

2. On May 31st, we implemented Material Ledger for this company code (currency = CNY) during a system 'blackout' period.

a. Ran CKMSTART- we did NOT select an Exchange Rate Type. It was our understanding that if you did not make an entry, the system used the exchange rate category defined in FI for every currency category.

3. Transaction: CKM9

4. Reset Cost Component Structure

5. Startup Cost Component Structure

6. Generated Operating Concern

7. Ran CKMM

8. Released the Cost Estimate

At that point, the business noticed there was a significant revaluation in General Ledger Account 520000 (Material Revaluation)

We believe this has to do with the exchange rate that was used to value the inventory.

Transaction code: OB22 exchange rate is set to M-standard translation at average rate

Settings for Each fiscal year: P rate with effective date of July 1, 2019 and then we also have the July 1, 2020 rate defined

Below is an overview of a material analysis and what we are seeing.

Review of Material C65209-100 Period 12 Current Inventory USD 649,725.00 Price Unit 1,000.00 Standard Price USD 1,356.73 Current Inv Value 881,501.40 (Curr Inv * Stand Price)/Price Unit Period 10 and 11 Current Inventory USD 649,725.00 Price Unit 1,000.00 Standard Price USD 1,301.81 Current Inv Value USD 845,818.50 (Curr Inv * Stand Price)/Price Unit Difference of Per 12 to Per 10/Per 11 USD 35,682.90 Per 12 Current Value minus Period 10 or 11 value Exchange rate review: Month 11 7.13830 Std Price 9292.71 CNY/Std Price 1301.81USD Appears to have used 'M' rate Month 12 6.84934 Std Price 9292.71 CNY/Std Price 1356.73USD Appears to have used 'P' rate
  • Why did the valuation always use ‘M’ rate in the past months but appears to have switched?
  • When they did the release after Material Ledger, the calculations and screen shots above show that the valuation used the ‘P’ rate?

If this is truly how this should work, how do companies explain and accommodate the significant change?