Hedge accounting issue

[former_member198450]

Hello expert,

I need help in hedge management. My scenario is like below.

I create a Hedge plan THMEX from 01.01.2015 till 31.03.2015

I created a deal FRA 60C for same period and settle and assign the same in THMEX.

I followed below step.

THM80 for Effective test.

THM50 Transfer Prospective Effectiveness Test

TPM60 and THM30(01.01.2015)

TPM1 Valution:

1) All the above process I did for Month end activities. But during last period for March (31.03.2015) I couldn’t do TPM1 (valuation). Is because the hedge contract over? Am i missing anything steps in this?

2) question, I created same scenario for 01.04.2015 till 30.06.2015  but this time when I tried to do THM50, there was not output? Could you please let me what I’m missing? And why system is behaving in this way?

In advance,Thank you very much for looking into my issue.

Regards,

Jain

[Former Member · Accepted solution]

HI Jain,

The end date of a hedge plan usually aligns with the due date of the exposures.

1. During the Last period or on 31.03.15 in your case there will be no TPM1 as the HR is getting expired on this date. You would perform the closing operations and need to realize the Profit/loss flows. Here essentially the balances of previous unrealized portions (from TPM1) are taken off the books and with the new balances, at the due date, are classified as realized.

Check folder SAP Menu>FSCM>TRM>HM>Closing Operations in Hedge Management

And also check folder Risk Expiration.

You can see the classification or distribution of PnL flows, after you post the derivative from TBB1, through TPM18.

Basically you would need to De-designate the HR to de-activate the HR. The effective portion will remain in equity. You can also Dissolve the HR completely and by doing this the system re classifies the equity balance (TPM1 postings) and are posted to PnL.

2. THM50 is basically for transferring  your ineffective portion of your HR when you perform a prospective Effectiveness assessment . if THM50 doesn't show any log, it means either your HM is 100% effective or there have been no Effectiveness tests performed for the key date.

As per me the the system behavior is correct.

Regards,

Nikhil

[former_member198450 · Accepted solution]

Dear Nikhil,

Thank you so much for your reply.

Could you please help me understand your below point. I'm not clear about same.

"Basically you would need to De-designate the HR to de-activate the HR. The effective portion will remain in equity. You can also Dissolve the HR completely and by doing this the system re classifies the equity balance (TPM1 postings) and are posted to PnL."

Also, THM50 its for transferring effective portion to HR not Ineffective. right?

Once thanks your very much your suggestion its really helpful.

Regards,

Jain

[Former Member · Accepted solution]

Hi Jain,

To be precise, it means that the postings you carry out with TPM1 at each key date are posted to certain OCI/equitty accounts based on Hedge Strategy  you have used - Cash Flow or Fair Value and secondly based on the effective and ineffective portions. For Example in case of Cash Flow Hedge the Changes to fair value of the Hedging instrument that is effective are posted to Equity account and the ineffective portion is realized to PnL immediately. Towards the Maturity when the HR is dissolved or De-designated, the effective portions are reclassified to PnL. The OCI balance is then treated as Earning.

Also THM50 is indeed for transferring Ineffective portion. As its a Prospective Assessment transaction, when you execute it, it will show you the desired HRs which are effective(indicated as Green Light). But when you double click the green light, the light turns red which means that the HR is marked as ineffective. Hence on saving on this status the HR is either De-designated or Dissolved based on the settings you made in customizing.

Regards,

Nikhil

[former_member198450 · Accepted solution]

Dear Nikhil,

Thank you very much for your help, i'll check same in system and get back in case of any further query.

Best Regards,

Jain