SAP FICO Interview Questions and Answers - 3

126. What are all the Prerequisites for Posting in a ‘Foreign

Currency’?

The following are the prerequisites you need to consider before posting in a foreign currency:

􀂃 Local currency already defined for the Company Code (in the global parameters)

􀂃 Foreign currency defined in the currency code Table

􀂃 Exchange rate defined for the foreign currency and the local currency

􀂃 Translation Ratio maintained for the local and foreign currency

127. How are ‘Exchange Rates’ Maintained in SAP?

An ‘Exchange Rate’ is defined for each pair of currencies, and for each ‘exchange rate type’

defined in the system. The exchange rate is defined at the document header level.

128. What is an ‘Exchange Rate Type’? List some of them.

The ‘Exchange Rate Type’ is defined according to various purposes such as valuation,

translation, planning, conversion, etc. The commonly used exchange rate types include:

Figure 26: Exchange Rate Types

129. What is known as the ‘Translation Factor’?

The relation between a pair of currencies per ‘exchange rate type’ is known as the ‘Translation

Factor.’ For example, the translation factor is 1 when you define the exchange rate for the

currencies USD and INR:

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130. Is there an Easy Way to Maintain Exchange Rates in SAP?

SAP offers a variety of tools to maintain exchange rates on an on-going basis. The tools include:

􀂃 Exchange Rate Spreads

􀂃 Base Currency

􀂃 Inversion

Use the SAP supplied program, RFTBFF00, for populating the exchange rate table automatically

from an input file in a multi-cash format from a commercially available input file.

131. What is known as an ‘Exchange Rate Spread’?

The difference between the ‘bank-buying rate’ and the ‘bank selling rate’ is known as the

‘Exchange Rate Spread,’ which remains almost constant. When you maintain the exchange rate

spread, it is sufficient if you maintain the ‘average rate’ for that currency in question in the

system as you will be able to deduce the buying/selling rate by adding/subtracting the spread

to/from the average rate.

132. Explain the use of ‘Direct’ or ‘Indirect Quotations.’

It is possible to maintain the exchange rates, in SAP, by either of these two methods. What

determines the use of a particular type of quotation is the business transaction or the market

standard (of that country).

SAP adopts two prefixes to differentiate direct and indirect quotes during entering/displaying a

transaction:

􀂃 ‘’—Blank, no prefix. Used in Direct Quotation

􀂃 ‘/’—Used in Indirect Quotation

When there is no prefix entered, (blank), the quotation is construed as the ‘direct quote’ by the

system. Possible scenarios include:

􀂃 The company in question is mainly using the ‘Indirect Quotation.’

Use ‘’ (blank) as the prefix for default notation for indirect quotation. Use ‘*’ as the prefix for

the rarely used direct quotation. If someone tries entering a transaction using direct quotation,

but without the ‘*’ in the exchange rate input field, the system will issue a warning.

􀂃 The company in question is mainly using the ‘Direct Quotation.’

You do not need any specific settings as the default is the ‘’ (blank) prefix for the direct

quotation, and ‘/’ for the indirect quotation. So, unless you make a transaction entry with ‘/’

prefix, the system takes all the entries as that of direct quotation.

􀂃 There could be instances where you are required to configure in such a way that a prefix

is mandatory irrespective of the type of quotation. In this case, define the direct quotation

prefix as ‘*’, and the indirect one as the system default ‘/’ prefix. This necessitates a prefix

each of the entries either by ‘*’ or ‘/.’ Otherwise, the user will get a warning to correct the

entry.

133. Explain how ‘Taxes’ are Handled in SAP.

SAP takes care of tax calculation, tax postings, tax adjustments, and tax reporting through the

three FI components; namely GL, AP, and AR. The processing of the following kinds of taxes is

possible:

1. Tax on Sales and Purchases

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a. Input Taxes (Purchase Tax)

b. Output Taxes (Sales Tax)

2. Additional Taxes (these are country specific and in addition to the tax on sales and

purchases)

3. Sales Tax

4. Withholding Tax

a. Classic Withholding Tax

b. Extended Withholding Tax

SAP allows taxation at three levels:

1. National level or federal level (Europe, South Africa, Australia, etc.)

2. Regional or jurisdiction level (USA)

3. National and Regional level (India, Canada, Brazil etc.)

134. How is Tax Calculated in SAP?

SAP uses a technique called ‘Condition Method’ to calculate taxes (except Withholding Tax) in

the system. The system makes use of ‘Tax (Calculation) Procedures’ defined in the system

together with the Tax Codes for calculating the quantity of tax.

1. The Tax Code is the starting point in the tax calculation. The tax code is country specific,

with every country having a country specific Tax Procedure defined in the standard system,

which is used as the template for defining various tax codes. The system uses the tax

code to verify the following:

Figure 27: Condition Type (Tax Processing)

a. Tax type

b. Amount of tax calculated/entered

c. GL account for tax posting

d. Calculation of additional tax portion, if any

2. Tax Rates are defined for each of the tax codes. The tax rates are then associated with

Tax Types, which are included in the tax procedures. (Because of this relationship, it is

technically possible that a single tax code can have multiple tax rates for various tax types.)

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3. The tax code is assigned to a Tax Procedure, which is tagged to a GL master record. A

particular tax procedure is accessed whenever that GL account is used in document

processing.

Figure 28: Steps in Tax processing

A Tax Procedure contains the following:

􀂃 Steps— To determine the sequence of lines within the procedure.

􀂃 Condition Types— Indicates how the tax calculation model will work (whether the

records are for fixed amount or percentages and whether the records can be processed

automatically, etc.)

􀂃 Reference Steps— Where the system obtains the amount/value it uses in its calculation

(for example, the base amount)

􀂃 Account/Process Keys— Provide the link between the tax procedure and the GL

accounts to which tax data is posted. This helps in automatic tax account assignments. To

enable that these keys have the necessary information for automatic assignment, you need

to define the following:

o Posting keys (unless you have a specific requirement, it will be sufficient to use

the GL posting keys: Debit: 40, Credit: 50)

o Rules to determine on which fields the account determination is to be based

(such as the tax code or country key)

o Tax accounts to which the postings need to be made

SAP comes with a number of predefined account/process keys, and it is recommended that the

standard keys be used.

4. The Access Sequence helps in identifying the sequence of Condition Tables to be used

and identifying which field contents are the ‘criteria’ for reading the Condition Tables (a

group of Condition Types).

5. The tax amount so calculated is normally posted to the same side as the GL posting that

contains the tax code. When exchange rate differences occur (due to tax adjustments in

foreign currencies) these differences are generally posted to the specific account(s) for

exchange rate differences. However, it is possible to specify (per Company Code) that the

exchange rates for tax items can also be entered manually or determined by the posting or

the document date, and the resulting differences posted to a special account.

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Figure 29: Account/Process Key for tax processing

6. R/3 has a number of predefined account keys, and it is recommended that the standard

keys be used.

135. Explain the Configurations Required for Taxes in SAP.

You need to define the following to customize SAP for this purpose:

1. Base Amount for Tax Calculation

For each Company Code you need to define whether the Base Amount includes the cash

discount as well. If the base amount includes the discount, then the tax base is called

‘Gross,’ otherwise, it is ‘Net.’ You may also define a similar base amount for calculating

the ‘Cash Discount.’ This also has to be maintained for each of the Company Codes.

2. Tax Codes

The Tax Code is a 2-digit code specifying the percentage of tax to be calculated on the

base amount. While defining the tax code, you will also specify the ‘Tax Type’ to classify a

tax code relating to either ‘Input Tax’ or ‘Output Tax.’ The tax types are country specific

and determine how a tax is calculated and posted.

3. Tax Rate

The Tax Rate is the percentage of tax to be calculated on a base amount. You will be able

to define tax rates for one or more tax types when you define a single tax code.

4. Check Indicators

By using the check indicators, you configure the system to issue Error/Warning

Messages when the tax amount entered manually is incorrect.

136. What is a (Tax) ‘Jurisdiction Code’?

A ‘Jurisdiction Code,’ used in countries such as the United States, is a combination of the

codes defined by tax authorities. It is possible to define up to four tax levels below the federal

level. The four levels can be the:

􀂃 Sub-city level

􀂃 City level

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􀂃 Country level

􀂃 State level

Before you can use the jurisdiction codes for tax calculation, you need to define the following:

1. Access Sequence (to include the country/tax code/jurisdiction fields)

2. Condition Types (which references the access sequence as defined above)

3. Jurisdiction Codes

The tax rates are defined in the tax code by jurisdiction. When posting taxes with a jurisdiction

code, note that the taxes may be entered per jurisdiction code or per tax level.

137. Tell me about the ‘Tax Reports’ in SAP.

SAP comes delivered with country-specific default ‘Tax Reports’ to meet your tax-reporting

requirements. However, it is not uncommon to use third-party software for the same purpose. As

a process, it is recommended that the ‘closing operations’ are completed before running the tax

reports. This will ensure that the system makes relevant adjustment entries (between payables

and receivables, exchange rate differences, etc.) so that the correct tax amounts are reported.

138. How is ‘Master Data’ different from ‘Transaction Data’?

There are three kinds of data residing in any SAP system:

1. Table Data

2. Transaction Data

3. Master Data

Table Data refers to the customized information for a particular Client. This includes data such as

payment terms, discounts, pricing, tolerance limits, etc., which you do not normally change on a

day-to-day basis.

Transaction Data is the day-to-day recording of business information such as purchase orders,

sales returns, invoices, payments, collections, etc. This includes both system-generated data (tax,

discount, etc., automatically calculated by the system during document posting) as well as usergenerated

data.

Master Data is the control information required to decide how transaction data gets posted into

various accounts (such as customers, vendors, GL, etc.). The master data is usually shared

across modules (for example, customer master records are common both to FI and SD in SAP)

obviating the need for defining it in various application areas. The master data remains in the

system for fairly a long period.

In the case of GL Master Records, the data is created in two areas:

1. Chart of Accounts Area (common to all Company Codes: Chart of accounts, GL

account number, account name (short and long text), B/S or P&L indicator, account group,

etc.).

2. Company Code Area (specific to that particular Company Code: Company Code, tax

code, currency, open item management, line item display, sort key, etc.).

In the case of the Customer/Vendor Master Record, the data is created in two areas:

1. Client Specific (general data such as account number, name, telephone, bank

information, etc., which is common to all the Company Codes using this master).

2. Company Code Specific (valid only for the Company Code, this includes: terms of

payment, dunning procedure, reconciliation account, sort key, sales area, purchasing

information, etc.).

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139. Can You Post an A/C Document if the ‘Credit’ is not Equal to

the ‘Debit’?

In general, unless the ‘debits’ equal the ‘credits’ in a document, you will not be able to post the

document. However, the system allows you to post some of the documents, even if this not true,

which includes the following:

􀂃 Noted items: this will contain only a debit or credit. Since there is no updating of

accounting entries, the system will allow you to go ahead with the posting of these items.