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How to reverse impact of VAT Amount on Inventory ?

Hi ,

Our company purchase some material ( with VAT ) to sale it further. Thus at the time of doing GR we did not load the VAT amount on inventory & during MIRO VAT amount is booked to a different VAT recoverable account so that we can take credit of the same

For ex : PO - 150 ( Mat- 100 , VAT - 50)

Entries during GR

Inventory -100 to GRIR - 100

Entries during MIRO

Vendor 150 to GRIR - 100 to VAT reco - 50

But after 2 weeks , the same material was used for internal use ( since we have internal projects too) instead of selling it further .This means that we are now not eligible to take credit of Input VAT amount & thus the Input VAT amount will now get loaded on inventory cost & the amount which was earlier booked into VAT recoverable G/L also needs to be reversed.

Thus above mentioned entries should be rectified to following

Inventory - 150 to GRIR - 150

Vendor - 150 to GRIR - 150

Now need to know what should be best practices in order to handle such scneario in SAP .

Thanks in advance !!

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5 Answers

  • Best Answer
    Nov 06, 2017 at 07:22 AM

    Hi Sachin,

    You need to look at the ratio between in-house consumption and resell to customer. If the resell to customer in very low volume then the work around look fine.

    Also although it is rarely happen but you may need to take care this in case there is shortage of quantity coverage during SC and SD, system will hit PPV account.

    https://help.sap.com/saphelp_erp60_sp/helpdata/en/60/70b6531de6b64ce10000000a174cb4/frameset.htm

    Thanks.

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  • Oct 28, 2017 at 02:24 PM

    If it is not flexible with financial JV posting, then you need to reverse the invoice and goods receipt and post that again without vat.

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    • Hi Dibyendu

      Financial JV Posting to an inventory account is not suggestible and we cannot reverse the invoice & goods receipt as we have already done the payment to vendor , which means we have to cancel all documents & post them again.

      Infact our business nature is like that such scenario's may occur in future also. Therefore trying to find out what could be suggestible ways to handle it.

  • Oct 30, 2017 at 03:34 AM

    Hi Sachin,

    Which inventory evaluation method you are using? standard cost or MAP?

    if you are using standard cost S, then you can use MR22 to post 50 for that material. It will hit price change 50 to the price change GL. this price change 50 need to be include back to your project or production order via activity cost or costing sheet. No need to adjust GR/IR Clearing. Your posted VAT value will offset each other with the gain/loss revaluation GL from MR22. If you want to credit the VAT GL directly. Then you can use the reason code in MR22. Check this

    https://blogs.sap.com/2015/01/10/price-change-reasons-with-different-account-determination-mr21mr22/

    If you are using MAP, then you can use MR22 to post 50 for that material as well. It will increase your inventory value. If you already PGI the material to your project or production order. You may need to reverse the posting and post again if you want to include the MAP cost to that project or production order.

    Also, i curious to know this requirement is from which country? For my understanding, we can claim the input VAT from tax authority regardless of whether we sell the raw material to customer or consume ourselves provided the company registered for VAT.

    Thanks.

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    • Hi Lams ,

      Although if modify the cost of my inventory item via MR22 then still I would not be able to reverse the VAT amount credited in my VAT recoverable G/L.

      We are doing config for UAE VAT. If you have purchased something for personal consumption then the taxes gets inventorized else you can claim the refund of the same from Govt. during filing return.

      Searching for a process in standard SAP via which I can debit inventory & credit tax both so that net impact could get nullified.

  • Nov 03, 2017 at 03:40 AM

    Hi Sachin,

    As mention above, you can reclass the posted VAT amount while you are using MR22 with reason code. You need to configure a reason code and map to the VAT GL account. Check link below for the configuration and details

    https://blogs.sap.com/2015/01/10/price-change-reasons-with-different-account-determination-mr21mr22/

    It will Cr Inventor (if price control = V), Dr price change ( if price control = S), Cr VAT GL ( witht he reason code) configuration.

    Thanks

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    • Hi Lam ,

      Thanks for the link :) :)

      With this solution I would be able to post directly into VAT G/L but still the tax code will not get updated in the entry .

      As a result this entry will not get reflected in my VAT Periodic report. Also this VAT amount will not be linked to any vendor invoice due to which during audit if any query comes related to this amount then it would be difficult for us to justify credit amount.

      Sachin

  • Nov 06, 2017 at 03:30 AM

    Hi Sachin,

    For tax code issue, you can use substitution to populate the tax code during posting.

    Your requirement is to reclass the tax amount to inventory and you are not going to adjust your AP amount. So, i don't think the adjustment entries will hit the vendor account. Not sure your client accept that by putting the vendor invoice no at reference or doc. header text in MR22? If yes, then this is the linkage.

    Thanks.

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    • Hi Lam ,

      Thanks for replying.

      There is a workaround which we have used. Pls. suggest if there is any further implication.

      We purchase inventory with non deductible tax which gets adjust in out inventory

      PO : Base - 100 , Tax - 50

      MIGO - Inv - 150 to GRIR - 150

      MIRO - Vendor - 150 to GRIR - 150

      Now if after 2 weeks ( after clearing vendor invoice with payment ) it was decided to use the same inventory in a project where we become liable to take input credit of tax.

      we post a sub. credit against same PO

      SC : Vendor 150 to Inv 150

      Again we post a sub. debit ( this time we modify the tax code at the time of posting the entry)

      SD : Vendor 150 to Inv 100 to VAT 50

      In this way all entries in tax account will be posted with tax code & will get reflected in our return.

      At the time of audit we can give relevant vendor invoice ref to the auditor against which we are claiming VAT.

      All entries gets cleared with each other & thus no open entries would be there.

      Pls suggest if there is any point which I have missed out & needs to be taken care prior suggesting the same to our client.

      Thanks

      Sachin