Inventory Revaluation

1. OVERVIEW 

Inventory revaluation is the process of adjusting inventory costs to account for changes in recorded costs. Exchange rate fluctuations, supply chain disruptions, damage, or spoilage may be the cause of these modifications. Revaluing inventory involves comparing the item's recorded value to its market worth. Businesses can make sure that their financial accounts appropriately reflect the worth of their inventory by revaluing their stock, which is essential for making wise business decisions. 

1.1  WHY WE NEED INVENTORY REVALUATION  

Revaluation is necessary to ensure that the recorded inventory value on the balance sheet reflects its true value. There are various circumstances when Inventory revaluation is necessary are mentioned below: 

Obsolescence: If the inventory has become obsolete or its demand has decreased, then the value of inventory should be revalued to reflect the reduced value. 

Market changes: if there are changes in the market related to demand or supply then it will affect the value of inventory. So that the value of inventory should be revalued to reflect the current market value. 

Inaccurate book value: If in the accounting books inventory has been recorded at an inaccurate value due to accounting errors then a revaluation is necessary to correct the error. 

Damage or spoilage: if the inventory has been damaged or spoiled then the value of inventory should be revalued to reflect the reduced value. 

Regularly scheduled revaluation: Most of the companies do the inventory revaluations on a regular basis such as annually or quarterly so that it must be necessary to record the value of inventory is accurate. 

When inventory revaluation is done business can ensure that their financial statements accurately reflect the value of their inventory, which is very important for making informed business decisions. 

2. INVENTORY REVALUATION 

In Vienna Advantage, the inventory revaluation functionality allows users to adjust the cost of inventory in the system. This adjustment can be performed using two different methods, depending on the user's requirements.  

Navigate to Menu ->Financial Management -> Posting Set up -> Inventory Revaluation or search for Inventory Revaluation in search utility available in Menu itself. 

These methods are: 

3.Revaluation based on Sold/Consumed Quantity 

4. Revaluation based on Available Quantity 

2.1  REVALUATION BASED ON SOLD/CONSUMED REVALUATION TYPE 

With the "Revaluation based on Sold/Consumed Quantity" method in Vienna Advantage, the system adjusts the cost of inventory by taking into account the quantity of items that have been sold or consumed within a specific period. This method considers the actual number of units that have been used or sold. 

The quantity of items sold or consumed, this method also takes into account any differences that may arise due to factors such as accounts payable (AP) invoices. If there are any variations in the inventory cost that were not initially considered during the selling or consuming process, this method ensures that these differences are incorporated into the cost adjustment. 

By accurately adjusting the cost of consumed inventory, this method enables precise calculations of the cost of goods sold or inventory consumption. It provides a more accurate picture of the financials by aligning the cost of consumed items with their actual inventory cost. 

In summary, the "Revaluation based on Sold/Consumed Quantity" method in Vienna Advantage considers the actual quantity of items sold or consumed and adjusts the cost accordingly. It also accounts for any discrepancies caused by factors like AP invoices, ensuring that the cost of consumed inventory accurately reflects the actual inventory cost. This approach enhances the accuracy of calculating the cost of goods sold or inventory consumption account and provides a more precise understanding of the financial aspects of the business. 

Let's take an example to explain in a better way how the system uses to adjust the cost of the Sold/Consumed Quantities. 

• Product = Copper Rod 

• UOM = KG 

• Product Category = Raw Material 

• Costing Method = Weighted Average Invoice 

• Costing Level = Organization 

There is a Purchase Order raised to a vendor of the Copper Rod product with an agreed price of USD 100/KG and 10,000 KG quantities. All the quantities of Copper Rod are delivered on time and as a result, the system will generate the cost as a completion of the GRN.  

The accounting consequences of the GRN will be as follows: 

The cost of the Product will be as follows:  

• Product = Copper Rod 

• UOM = KG 

• On-Hand Qty = 10,000 

• Product Cost = 100 

Once the material is received then the Manufacturing department consumes the quantities against the open Production Orders. Let’s suppose the 8,000 quantities consumed during the period with the cost of USD 100 at the Production execution transactions and later entered the AP Invoice that came with the Price of USD 120/Unit. As a result of the completion of the AP Invoice, the system will generate the Matched Invoice record as follows: 

The accounting consequences of the AP Invoice will be as follows: 

At the Matched Invoice transaction, the system will capture the available stock using the FIFO cost queue and based on our example it will be 2,000 quantities and the consumed quantities will be 8,000. Also, the system will calculate the Difference Cost/Unit which will be USD 20/Unit. Based on this information the system will generate the accounting consequences of the Matched Invoice. 

The accounting consequences of the Matched Invoice will be as follows: 

At the end of the month, the user need to do the Inventory Revaluation for the Raw Material where there would be some difference came at the AP Invoice and that difference needs to be considered in the cost of the Consumed or Sold inventory to balance the financial impact or the manufacturing of the SFG/FG products. 

 The cost of the Product will be as follows after the AP Invoice and Matched Invoice transaction: 

• Product = Copper Rod 

• UOM = KG 

• On-Hand Qty = 2,000 

• Product Cost = 120 

Logic to update the Cost of the product based on the example: 

Copper Rod = (Available Stock * Current Cost price) + (Queue Qty * Difference/Unit Cost) / Total Available Stock 

Copper Rod = ( 2,000 * 100) + (2,000 * 20)/2,000 

Copper Rod = 2,00,000 + 40, 000 / 2,000 

Copper Rod = 2,40,000/2,000 

Copper Rod = 120/Unit+ 

2.2  REVALUATION BASED ON AVAILABLE REVALUATION TYPE 

The "Revaluation based on Available Quantity" method in Vienna Advantage involves adjusting the cost of inventory based on the currently available quantity of items in stock. This method considers the quantity of items that are still on hand and available for use or sale at the time of the revaluation. 

By taking into account the available quantity, the system can accurately determine the cost of the remaining inventory. This adjustment is particularly useful in capturing any changes in the market value or the cost of the items since the initial valuation. It ensures that the inventory cost reflects the most up-to-date information, allowing businesses to have a more accurate understanding of the value of their inventory. 

Using the "Revaluation based on Available Quantity" method offers several benefits to businesses. Firstly, it enables them to track the value of their inventory more accurately. By considering the current available quantity, businesses can have a real-time snapshot of the worth of their remaining stock. 

Additionally, this method facilitates informed decision-making regarding pricing strategies, restocking plans, and financial reporting. With an accurate assessment of the value of available inventory, businesses can make informed choices about setting competitive prices, determining reorder points, and optimizing their inventory management processes. 

Ultimately, the "Revaluation based on Available Quantity" method in Vienna Advantage empowers businesses to maintain accurate and up-to-date records of their inventory value. By considering the current available quantity, it enables businesses to make informed decisions regarding pricing, restocking, and financial reporting, leading to improved efficiency and profitability. 

Let's take an example to explain in a better way how the system updates the cost of the Available stock. 

• Product = Copper Wire 

• UOM = Meter 

• Product Category = Finished Material 

• Costing Method = Standard Costing 

• Costing Level = Organization 

• Estimated Cost = 130 

To produce the Copper Wire the, Copper rod is needed as a Raw material. In the previous example we have consumed the 8,000 quantities in the production. We will consider the same quantities to produce the Copper Wire with an assumption that 1 meter of Copper wire produced using the 1 KG of Copper Rod. 

The following will be the cost of the Copper wire after Manufacturing: 

Raw Material = 8000 * 100 = 8,00,000 

After the revaluation of the Raw material cost will be changed and considered different in the Cost Rollup process but if revaluation or the Raw material is not done then the consumed cost will be considered by the system and hence it's important to Revalue the Raw material before running the cost rollup process. 

Raw Material Cost = 8,000 * 120 = 9,60,000 

Direct Cost = 1,00,000 

Indirect Cost = 50,000 

Copper Wire Cost = 138.75 

As a part of the Cost rollup process at the end, the user needs to revalue the Finished product in two steps as follows: 

5. Revalue the FG product using the Revaluation Type = On Available Quantity 

6. Revalue the FG product using the Revaluation Type = On Sold/Consumed Quantity 

If the manufactured product Copper Wire 6,000 are sold then the user following will be the shipment/delivery order accounting consequences when the revaluation type is On Sold/Consumed Qty: 

The following will be the Accounting consequences of the Inventory revaluation when the revaluation type is On Available Quantity: 

The following will be the Accounting consequences of the Inventory revaluation when the revaluation type is On Sold/Consumed: 

 During the completion of the Inventory Revaluation, the system will update the Cost of the FG product at the Costing engine. Once the cost is updated thereafter the user will not be able to reverse the Inventory Revaluation records. 

2.3  INVENTORY REVALUATION HEADER 

When the Inventory revaluation window is opened, the system shows the Inventory revaluation window as given in the below screenshot: 

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1. Tenant and Organization are auto-populated based on user login. 

2. The Document number will be auto-generated by the system based on the Document type selection. 

3. Enter the Document Date, on which the transaction of revaluation is processing. 

4. Account Date would be auto-populated based on the document date, but user can change it according to the impact of account consequences. 

5. Document Date and Account Date should be same and it should be equal to the system date, when Revaluation Type= On Available Quantity. Otherwise, system will not allow to save the record and throw an error message. 

6. User needs to select Revaluation Type among two values, either ‘On Available Quantity’ or ‘On Sold/Consumed Quantity’.  

   • ‘On Available Quantity’ is used to do the revaluation of the cost of the product as per the current quantity of the product. 

   • ‘On Sold/Consumed Quantity’ is used to do the revaluation of the cost of the product as per the sales and inventory use transactions. 

7. If Revaluation Type=On Sold/Consumed Quantity, then system will display Revaluation Period field. This field will display period of previous month to revaluate the cost of the product. Also, Costing methods related to Purchase order will not be visible in Case of Sold/Consumed quantity Revaluation type. Such as, Average PO, Last PO and Weighted Average PO. 

8. User has to select the Accounting Schema from the dropdown, which defines the rules used in accounting such as costing method, currency and calendar. All the active accounting schemas will be visible in the dropdown as per the selected organization. 

9. Needs to select the Currency Rate Type, which helps to convert the price to other currency if there are multiple accounting schemas during posting of the transaction. For e.g. Spot, Average, Company & Period End etc. 

10. Product group field indicates the group to which the product belongs and helps to consider the product for revaluating the cost. There are different product groups such as Raw material, Finished goods, Semi finished goods, Consumables, Trading and others. 

11. Product Consideration-It is used to create revaluation lines based on the selected values. 

12. All Product-- System will revaluate the all the products based on the available/sold quantity.  

13. Cost Variance Product-- This will only revaluate those products, where system find variance on matched invoice.  

14. Manufactured Product--System will revaluate only manufacturing products (Finished Goods) as per available transactions on Assembly, Production Execution and Product Cost Period wise. If user will choose Manufactured product , Revaluation cost will be the cost of Assembled product. 

15. User has to select the Costing Level and Costing Method, which helps to filter the product categories to revaluate the cost of the assigned products. 

16. User has the option to select the value in Product Category and Product field, to revaluate the cost for particular category or product. 

17. Warehouse is mandatory to select, so that system will generate the Revaluation lines for the product category and products to the respective warehouse and locator. 

18. Cost Type field will display, when Costing Method=Standard Costing. User has to select the particular cost type value against which the cost of the product available on costing info window. 

19. Generate Revaluation Lines button helps to generate Revaluation lines only, after inserting values in all the required fields. Field value combinations should be correct to generate the lines. 

20. Total Difference will get updated from revaluation lines only in case of "On Available quantity" Revaluation type. 

21. Document Status is a system maintained field and will be updated by the system automatically based on some events done by the users on the Inventory Revaluation record.  

2.4  REVALUATION LINE 

The user would be able to generate the Inventory Revaluation lines by click on Generate Revaluation Lines. All lines would be generated according to the selecting values in the fields on the header, such as Costing Level, Costing Method, Product Category, Product and Warehouse. 

2.4.1 REVALUATION TYPE – ON AVAILABLE QUANTITY 

User can perform Revaluation in case of all costing methods and all costing levels. Once the header fields are filled correctly, System will generate Revaluation lines with respect to the products as per filled values. It must be ensured that user cannot enter or edit any details on the line except Revaluated Cost, because all other fields would show in read only mode. Revaluation Line would show in the system as given in the below screenshot: 

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1. All Fields such as product, product category, Costing method, Costing level, UOM and Attribute set instance will be auto filled on the basis of selected values in the fields on the header tab by clicking on Generate Revaluations Lines.  

2. On hand Quantity of the Product in the selected warehouse would get updated in Available Stock field. 

3. Current Cost Price indicates the current cost of the product available on costing info. Current cost will be calculated on the basis of average of all the lines on Cost queue tab of costing info with the same warehouse as selected on Revaluation window header. 

4. Revaluated cost will be calculated as below. 

Revaluated cost is calculated as Follows: 

Step 1. Created a Purchase order of 100 qty at 100 price. 

Step 2. Completed material receipt with reference to Purchase order. 

Step 3. Created Inventory use for 30 qty. 

Step 4. Created Sales order and Delivery order for 20 qty. 

Step 5. Created Assembly by taking this product as Component. (Qty consumed 4 in Assembly.) 

Step 6. Created AP Invoice of the above GRN with 100 qty at 120 price. 

Revaluation cost : Difference in price of AP and PO = 20 

Consumed qty = 54 

Available qty = 46 

AP Price = 120 

Revaluation cost = 20 * 54 = 1080 

1080/46 = 23.4783 

Revaluation cost = 120 + 23.4783 = 143.4782 as per the above screenshot. 

5. Revaluated Total cost will be updated by multiplying Available stock with  Revaluated cost. 

6. Difference between Revaluated cost and Current Cost Price will appear in Per unit Difference  field. (Revaluated cost – Current cost price) 

7. By multiplying Available Stock Qty and Per unit Difference, system will calculate Total Difference value. 

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8. On the header, total difference will also be updated from the revaluation line which would come in Total Difference field as given below screenshot: 

9. If there are multiple revaluation lines, then system will add all the total difference values of each line and show its total on the header as per the above screenshot. 

10. After completing the Document, system will update the current cost on cost queue tab of costing info window. The cost will be changed only in the Selected warehouse line as selected on Header of Revaluation window.  

11. System will also update the M_Transaction ID on the Product transaction tab after completing the Revaluation document. 

2.4.2 REVALUATION TYPE – ON SOLD/CONSUMED QUANTITY 

1. All Fields such as product, product category, costing method, costing level, UOM and Attribute set instance will be auto filled on the basis of selected values on the header tab by clicking on Generate Revaluations Lines. Also, user has to fill another field ‘Revaluation Period’, which is used to define the period for revaluation as shown in given below screenshot. 

2. In case of Sold/Consumed, period field always show previous month from current date of the server. 

3. All Fields such as product, product category, costing method, costing level, UOM and Attribute set instance will be auto filled on the basis of selection parameters on the header tab by clicking on Generate Revaluations Lines.  

4. Quantity of the Product, which is Sold or Consumed in the selected period would get updated on Revaluation line tab. The lines on the revaluation line will be created according on how many times the product is consumed. Consumption qty is calculated with sum of Internal use qty, sale qty and production qty. 

5. Difference Per Unit Cost would pick the value by multiplying Value in 'Price Difference (AP-PO)' field with 'Consumed Quantity' on Matched Invoice window and result would get divided with 'Total Consumed/Sold Quantity' on Revaluation line for respective product as explained below: 

For example: Difference Per Unit Cost is calculated as below: Price Difference (AP-PO) * Consumed qty on Matched Invoice / Total Consumed/Sold Quantity of product on Revaluation line tab. 

In case below:  

Step 1. Created a Purchase order of 100 qty at 100 price. 

Step 2. Completed material receipt with reference to Purchase order. 

Step 3. Created Inventory use for 30 qty. 

Step 4. Created Sales order and Delivery order for 20 qty. 

Step 5. Created Assembly by taking this product as Component. (Qty consumed 4 in Assembly.) 

Step 6. Created AP Invoice of the above GRN with 100 qty at 120 price. 

Difference in price of AP and PO = 20 

Consumed qty = 54 

Available qty = 46 

AP Price = 120 

Difference cost per unit = Diff in price *  Consumed qty on Matched Invoice /  Consumed qty on Revaluation lines for that product 

20*56/56 = 20  

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6. Transaction Details section shows all the consumed Transactions such as Internal use, Sales, Production related to the product with their M_Transaction ID. 

7. Consumed/Sold qty shows the qty that is consumed for the particular Transaction. 

8. Difference per unit cost is updated on the basis of calculation explained in point 5. 

9. Consumed/Sold value is calculated after multiplying Consumed/Sold qty with Consumed/Sold cost. (I.e. 20 * 100 = 200) as per above screenshot. 

10. After adding consumed/Sold cost with the difference cost, new sold cost will be calculated and Value after revaluation is calculated on basis of  new sold cost.  

(I.e. (100 + 4) = 104 * 20 = 2080 as per the above screenshot. 

11. Cost after Revaluation is the new sold cost. 

Move to the Inventory Revaluation record and click on the Complete button and the system will open the pop-up as shown below in the print shot: 

Click on the “OK” button to execute the workflow that will process the Inventory Revaluation document.  

No M-Transaction ID will be updated in case of sold/consumed qty Revaluation type. 

The user can’t make any changes in the Inventory Revaluation record once processed. 

Do not create any transaction on Inventory revaluation day.