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FX Valuation in TPM1 with Gross Amortization Procedure (2 FI accounts)

Former Member
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Dear Experts,

I have one question regarding the foreign exchange valuation in tpm1:

The Position Management Procedure include the Gross Amortization Procedure, where Premium/Discount is not included in Book Value. Therefore the premium/discount is posted as accrued/deferred account.

At the end I will have one asset account for the Nominal Value and a second asset account for the premium/discount.

My problem: I cannot split the FX Valuation in the 2 accounts. Do you have any idea?

Thank you in advance!

Andreas

Accepted Solutions (1)

Accepted Solutions (1)

lorenz_sperl
Contributor
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Hi,

...we have not the same scenario (we use SAC NET) - PMP is set up like:

1) Amortization (SAC NET)

2) FX-Valuation (Amorized Cost: based on Amortized Acquisition Value)

3) FX-Valuation (Mark-to-Market)

4) Security Valuation (Mark-to-Markete OCI)

Hope, this helps a bit at least

Regards,

Lorenz

Former Member
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Hello Lorenz,

thank you for your help!

However I have still one question: How can you split up your FX-Valuation? In FX Valuation Procedure I just can select the Book Value as the component for the valuation.

Thank you!

Andreas

lorenz_sperl
Contributor
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Hi Andreas,

...perhaps you are on an older release?

In EhP4 you should have "2" Amortized Acquistion Value in field Comp. for Valuation (definition of Foreign Valuation Procedure / Type 5) available.

Perhaps you check about this in the OSS.

Regards,

Lorenz

Former Member
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Hi Lorenz!

We have EhP3 and will change to EhP4 on April.

Thank you for your help!

Andreas

Answers (1)

Answers (1)

Former Member
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Hi,

Was reading through this question and I understand that the question is answered, but just wanted to check on certain points.

In PMP, do we need to have two procedures for the same step (forex valuation) and will it actually work? I will check this.

Also if I understand the requirement correctly, you are managing premium/discounts through deferred revenue accounts. Hence when you do a forex valuation, you want the valuation amount to be split separately for position account and deferred revenue account? But in general is it the practice to separately valuate it.

When you do forex valuation, it will take into account the overall book value which is the purchase value plus the amortized amount. Valuation is performed for the new book value.

For the balance in local currency in the deferred revenue account, when you do the final repayment, a translation flow is generated based on the update type specified from the position outflows tab. This procedure can be managed in your current release itself.

Regards,

Ravi

lorenz_sperl
Contributor
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Hi,

...the reason for using 2 FX-Valuation Steps is, that for monetary Available for Sale (AfS) positions in a foreign currency, the currency translation differences resulting from changes in amortized costs can be posted to the profit and loss account (1st FX-Valuation). Other changes (2nd FX-Valuation, Title-Valuation) to the book value are entered in equity.

Regards,

Lorenz

Former Member
0 Kudos

Hi,

Assuming a held to maturity bond in foreign currency which is acquired at a discount, I thought the requirement was to separate the forex valuation for amortization and purchase component separately which I assume cannot be done. For this case, if the discounts are maintained as deferred revenue, then the difference arising due to forex valuations in deferred revenue component will be posted separately along with final repayment.

As a side note just wanted to understand, when we have 2 forex valuation steps in the same PMP, I am not sure how to valuations will be generated. If forex valuation is done through the first step, then it should not perform the next forex valuation step itself.

Regards,

Ravi

lorenz_sperl
Contributor
0 Kudos

Hi,

...the difference between the 2 FX-Valuations is, that the first is based on (Component for Valuation) Amortized Acquisition Value, the 2nd on (Component for Valuation) Book Value.

In HtM (to my knowledge) you only have Amortization and FX-Valuation of a Bond - no posting to OCI.

Regards,

Lorenz

Former Member
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Hi,

We will not have security valuation for HTM. HTM is based on amortized cost method as per IFRS. That part is fine. I understood the basis of both the forex valuation procedures.

But my question was how can we use both the procedures in the same PMP. Lets take a case where the book value of a bond is 1,000,000 and the amortized acquisition value is 1,100,000 (just some numbers for assumption). Now when we run the valuation, my understanding is that once the first forex valuation procedure step is performed, it should not perform the second forex valuation step on the same key date. After the first step itself the book forex rate would be fixed at current rate.

Also when we have same type of step (step 5 - forex valuation) twice in the PMP, then while doing valuation we should get an error saying PMP is inconsistent. In fact I am getting this error so just wanted to confirm.

P.S. Please dont think that I am probing further. In case if my understanding is wrong, I could correct it.

Regards,

Ravi

Former Member
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Hello,

let me explain my requirements with an easy example:

I purchased a bond in foreign currency: Nom 100, Purchase Value 80

Balance Sheet after Purchase:

Account 1 (for Nominal) 100 USD, 72 EUR (FX-Rate = 1,38)

Account 2 (for Disagio) -20 USD, -14 EUR (FX-Rate = 1,38)

Treasury-Book Value = 80 USD, 58 EUR

Valuation on a specific key date with FX-Rate = 1,50:

1) FX-Valuation: The system calculates 80 / 1,50 = 53 EUR..the old Book Value was 58 EUR, so it creates V203

2) Amortization with the correct FX-Rate -> is ok

3) Title Valuation, if AFS with the correct FX-Rate -> is ok

But with the FX-Valuation I have a problem: The system will posting V203 5 EUR, but I have to split the 5 EUR up to my 2 Accounts 1 and 2 in FI.

Thank you,

Andreas

Former Member
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Hi,

You will not be able to split the valuation for position and amortization component separately.

If you have used a Gross amortization procedure with separate accounts for accrual/deferral, then after all valuations, your position/nominal amount FI account will be balanced but your discount account/deferred revenue FI account 2 will have balance in local currency. For this when you are doing the final repayment, a clearing flow will be generated which will clear the local currency balance in this account.

In case a sale happens in between also this clearing flow will be automatically triggered. This will be triggered during all position outflows.

Regards,

Ravi

lorenz_sperl
Contributor
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Hi,

as written in my 1st answer, using the 4-Step-PMP you have 2 FX-Valuations (using different components as basis vor valuation) which do not result in an error. Every Valuation-Step creates Update Types which in the end create postings.

Regards,

Lorenz