| # Lower cost or market value An inventory can be valued using several valuation methods: FIFO LIFO Lot control MAUC FTP Valuation methods result into a certain inventory value in the ledger. However, the market value of the inventory can sometimes be lower than the inventory value in the ledger, for example, when item prices decrease, or when the items are almost at the end of their life cycle. Consequently, the value in the ledger does not always represent the real value of the inventory anymore. The International Financial Reporting Standards (IFRS) require in some cases reporting of the inventory market value instead of an inventory value determined by the original purchase prices. The market value can provide you with a better insight into the real value of the inventory. Reporting inventory value based on market prices instead of (higher) purchase prices is also referred to as lower cost or market value (LCMV). You can choose whether or not to revaluate the inventory value to the market value. So, there are two possibilities: Reporting inventory value without revaluation The inventory value is determined using market prices. However, this inventory market valuation is only temporary. At the start of the next financial period, the original inventory value (based on purchase prices) is used. Reporting inventory value with revaluation The inventory value is determined using market prices. After that, the inventory is revalued with the inventory market value. So, at the start of the next financial period, the inventory market value is used. Note In Manufacturing, only FTP valued end items are revalued. Other items must be revalued in Warehouse Management. Lower cost or market value in Manufacturing In LN, you can use market prices to valuate inventory for standard items as well as for customized items. Market prices can be entered in the Market Prices (whina1118m000) session. In Manufacturing, carry out the following steps: Open the Calculate Cost and Valuation Prices (ticpr2210m000) session. For customized items in PCS, open the Calculate Cost Prices by Project (tipcs3250m000) session. Select the Prices Based on Lower Cost or Market Value check box on the Market Price tab. Click Calculate. If an item's market price that is entered in the Market Prices (whina1118m000) is lower than the item's original purchase price, the market price is used to calculate the valuation price. Note If the Actualize Standard Cost and Valuation Prices check box in the Calculate Cost and Valuation Prices (ticpr2210m000) session is selected, valuation prices are updated. You can view the valuation prices via the Item - Standard Costing Data (ticpr3501m000) session. In this session, item costing data with several effective dates are listed. Select the item for which you want to view the valuation price, and click Valuation Prices from the appropriate menu. If the Actualize Standard Cost and Valuation Prices check box in the Calculate Cost and Valuation Prices (ticpr2210m000) session is cleared, valuation prices are not updated. However, you can view the valuation prices via the Item - Costing Data (ticpr2501m000) session. Select the item for which you want to view the valuation price, and click Valuation Prices from the appropriate menu. For customized items in PCS, you must use the Perform Actual Cost Price Calculation check box in the Calculate Cost Prices by Project (tipcs3250m000) session to determine whether valuation prices for customized items are updated. You can view the valuation prices in the Item - Standard Costing Data (ticpr3501m000) (if the check box is selected), or in the Item - Costing Data (ticpr2501m000) session (if the check box is cleared). Revaluate inventory value The effective date of the valuation price is not always the current date. The effective date can also be a date in the past. If the Backdate Valuation Price Allowed check box in the Cost Price Calculation Parameters (ticpr0100m000) session is selected, you can choose one of the following options for a date in the past: Last Date of Previous Period, so that the last date of the previous financial period is automatically determined as the valuation price's effective date. Specific Date, after which you can enter the desired effective date for the valuation price or cost price. If you select the Actualize Standard Cost and Valuation Prices check box (for customized items the Perform Actual Cost Price Calculation), the inventory value and the cost price are updated. However, if you also select the Last Date of Previous Period option and the Reverse to original inventory value at start of current period check box on the Market Price tab, the inventory's market value is calculated for the last date of the previous financial period, but the original inventory value based on the purchase price is taken at the start date of the current period. Consequently, the result of the revaluation is not used at the start of the next financial period anymore. Note The possibility to use market prices instead of purchase prices to valuate inventory is applicable for purchased items. In case of manufactured items, it is only applicable for the purchased items in the manufactured item's BOM. The market price is retrieved from Warehouse Management. |