PPV – How SAP determines

I know, you are now enthusiastic to account your new Audi from US in SAP. 

At first we will break up the transaction of buying Audi US into;

3 Action Points

• Identifying a Product.

• Placing an Order.

• Getting delivery of the Product.

There is different Price at each action point. 

Standard/Budget Price - 30,00,000 INR (50,000 USD *60)

Order Price - 51,000 USD *60 = 30,60,000 INR

Actual Price - 51,000 USD *65 = 33,15,000 INR

In SAP,

• During the first action point you must create a Material Master for the car and maintain Standard Price for the same. (Transaction MM01)

• During the second action point you have to create a Purchase Order at Order Price. 

(Transaction ME21N)

• During the third action point you can either do Invoice Receipt (Transaction MIRO) or Goods Receipt (Transaction MIGO). 

Depending on the nature of Price Variance, PPV will be posted either at IR stage or GR stage or both stages.

- During IR, Price variance between PO Price and IR Price will be posted, and

- During GR, Price variance between Standard Price and PO Price will be posted.

To elucidate, you can continue with the same example of Audi Q3 S Edition purchase, but this time with little more complication. 

You had set a budget of INR 25.00 Lakhs to buy Audi, but while placing order you came to know you have shed additional INR 3.99 Lakhs. With heavy heart you agreed for that also. But, a new shock waits for you when you receive the invoice..!! The order was placed at INR 28.99 Lakhs and the Invoice depicts 28.49 Lakhs, 0.50 Lakh less…!! On query you came to know that the saving of INR 0.50 Lakh is due to reduction in tax rate applicable to cars. This saving of INR 0.50 Lakh will be posted as +ve PPV at the time of IR and during GR, –ve PPV of INR 3.99 Lakhs will be posted.

This can be formulated as below;

PPV during IR:

PO Price - IR Price

28.99 Lakhs - 28.49 Lakhs = 0.50 Lakh

PPV during GR:   

Standard Price - PO Price

25.00 Lakhs - 28.99 Lakhs = 3.99 Lakhs

Net PPV:              

Standard Price - IR Price OR [Standard - Actual]

25.00 Lakhs - 28.49 Lakhs = 2.49 Lakhs

This can be Journalized as below;

During IR                  

GR/IR Account DR 28.99 Lakhs         [PO Price]

Vendor Account CR 28.49 Lakhs         [Invoice Price]

PPV Account (Bal.)     CR 00.50 Lakhs

During GR                  

Material Account DR 25.00 Lakhs   [Standard Price]

GR/IR Account CR 28.99 Lakhs [PO Price]

PPV Account (Bal.) DR 03.99 Lakhs         

We will now continue with accounting your Audi from US. In this case you can first do Goods Receipt (Transaction MIGO). 

On GR, following will be the posting;
         USD         INR
Audi Account DR 46,153.85 30.00 Lakhs 

[Standard Price in INR] [30,00,000/65=46,153.85 USD]

GR/IR Account CR 51,000.00 33.15 Lakhs 

[PO Price in USD] [51,000*65=33,15,000 INR]

PPV Account (Bal.) DR 4,846.15 03.15 Lakhs 

[3,15,000/65=4,846.15 USD]

On IR, following will be the posting;
        USD         INR
GR/IR Account DR 51,000 33.15 Lakhs  

[PO Price in USD] [51,000*65=33,15,000 INR]

Vendor Account CR 51,000 33.15 Lakhs

[Invoice Price in USD] [51,000*65=33,15,000 INR]

PPV Account (Bal.)     DR       -                                -        
(No PPV as there is no difference in PO and Invoice pricing)

Oh..!! But, wait why there is no differentiation of Price Variance and ForEx Variance?!!

Opportunistically, standard SAP does not provide such functionality! 

It just provides the total PPV, providing an opportunity for Consultants like us to develop;

- A report which provides bifurcation of actual Price Variance and ForEx Variance in the total PPV, or

- A Z Program which splits the total PPV into Price Variance and ForEx Variance, and re-posts amount from Total PPV GL to more specific PPV GLs.

If a PPV Z Program is designed, then in this scenario, you can find accounting entry like below;

           USD INR

PPV Account CR 1,000         03.15 Lakhs         

PPV - Price Account DR 1,000         00.60 Lakhs

[30,00,000 INR–30,60,000 INR] [51000 USD*60]

PPV – ForEx Account DR             -   02.55 Lakhs

[30,60,000 INR – 33,15,000 INR] [51000 USD*65]

NOTE: In case there was no exchange rate difference between PO date and MIGO/MIRO date, then only Price variance of 60,000 INR would have been recorded.