Posting Discounting of Long-Term Assets and Liabilities

Objective

After completing this lesson, you will be able to configure discounting of long-term assets and liabilities.

Discounting of Long-Term Assets and Liabilities Introduction

Discounting is the process of determining the present value of a payment that is to be received in the future, used for long-term receivables or payables in accordance with a contract. You use discounting of long-term assets and liabilities for the scenario of treating long-term receivables as a loan. This is the first job to be run in the sequence of the advanced valuation process.

To be compliant with the IFRS regulation, when determining the transaction price, an entity adjusts the promised amount, considering the time value of money, if the transaction contains a considerable financing component. This is the case when the timing of the payment agreed by the parties provides the customer with a significant benefit of financing the transfer of goods or services to the customer. 

The image shows how to calculate the Net Present Value (NPV) for a contract worth 1.5 million EUR. The contract has a 6% yearly interest rate, equating to a 0.5% monthly rate, due in 36 months. Calculations include a Net Present Value of 1,253,467.38 EUR, an initial discount of 246,532.62 EUR, and monthly interest income of 6,267.34 EUR.

In this case, a discount rate is applied to the amount due in the future to calculate the net present value as if this were a separate financing transaction. The effects of financing (interest revenues) must also be shown separately in the financial statements.

The image shows an T-Account chart for billed receivables, revenue, and interest income across periods with debits and credits. In Period 1, billed receivables are debited $1,500,000 and credited $246,532.62, while revenue is credited $1,500,000. Periods 2-35 show $239,069.31 debited for billed receivables and credited for interest income. Period 36 has billed receivables debited and interest income credited $7,462.69. An initial discount of $246,532.62 will unwind over 36 months.

You use the Post Discounting for Long-Term Assets and Liabilities job to calculate the net present value of long-term assets and liabilities, post the initial discount and interest revenue and perform the monthly discount unwinding with the respective postings in the General Ledger.

Capabilities

  • Calculate and automatically post net present value, initial discount, and interest income.
  • Post automatically periodic adjustments of discount (unwinding the discount) and interest income.
  • Use different discounting rules based on aging increments and interest rates.
  • Use reporting capabilities based on the usage of semantic tags.

SAP S/4HANA´s Discounting of Long-Term Assets and Liabilities covers contracts that include a single financing component. For revenue contracts with more than one significant financing component, use the revenue recognition applications. For discounting of lease contracts, use SAP Contract and Lease Management.

The business partner is updated with a Risk Class, which is helpful in determining the rate of interest. It is not applicable for suppliers/accounts payable. The interest indicator that you want to use exclusively for discounting has the type D.

The job is available in the Schedule General Ledger Jobs app by choosing the Post Discounting of Long-Term Assets and Liabilities template.

Discounting of Long-Term Assets and Liabilities Configuration

Before you can execute the job for the discounting of long-term assets and liabilities, you must make individual settings in the customizing to ensure that the configuration meets your requirements.

The following video explains the key steps in the configuration and demonstrates a discounting run in the SAP system.

Define Discounting Rules

A discounting rule governs the entire process of discounting long-term assets and liabilities. SAP provides the rule STVM for discounting, which includes the two valuation rule steps:

  • 0010 - Discounting of long-term AR

  • 0020 - Discounting of long-term AP

These two valuation rule steps are associated with the aging SDISCOUNT. The Aging is needed for the selection of transactions to be valuated according to their maturity.

SAP provides the following aging increments for the aging SDISCOUNT:

  • Short-term: Up to 12 months

  • Long-term: More than 12 months

You can use the agings that are part of the SAP standard delivery or you can create an aging of your own.

Screenshot of an SAP interface titled Change View 'Assign Interest Indicator to Aging Increment': Overview. It displays a table for discounting rules, showing valuation rule STVM, step 10, and aging SDISCOUNT. The table lists entries with Long-term: More than 12 months and risk classes A to E, each with interest indicator 01.

When determining the interest rate indicator in the valuation rule, the following basic interest rate types are available:

  • Risk-Adjusted Rate Types:

    These effective interest rate types consider the risk class of the business partner when determining the interest rate indicator.

  • Risk-Free Rate Types:

    These effective interest rate types disregard the risk class of the business partner when determining the interest rate indicator.

Only the interest indicator that you enter in the step Assign Interest Indicator to Aging Increment, is used by Post Discounting of Long-Term Assets and Liabilities. It has no effect on the interest indicator in the business partner master data.

By using semantic tags to tag accounts and account ranges in the financial statement version, you don´t have to select accounts manually in the configuration. When you've assigned a tag to a valuation rule, the tagged accounts are considered by the discounting job. If new accounts are created within a range that you've already tagged, these new accounts are automatically tagged, and therefore selected.

For the selection of G/L accounts by using semantic tags, the corresponding financial statement version must be assigned to its accounting principle. You can find this setting in customizing under Financial Accounting → General Ledger Accounting → G/L Accounts → Financial Statement Versions → Assign Financial Statement Versions to Accounting Principles.

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