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Contents
OBJECTIVE:..................................................................................................................................................................3
SCOPE OF THE DOCUMENT:.....................................................................................................................................3
This paper will cover:.................................................................................................................................................3
This Paper will not cover............................................................................................................................................3
TERMS USED:...............................................................................................................................................................3
PRE-REQUISITE (TAX) SETUPS:...............................................................................................................................3
TEST CASES OVERVIEW:.........................................................................................................................................11
TEST CASE FLOW.....................................................................................................................................................12
REFERENCE................................................................................................................................................................50
CONCLUSION.............................................................................................................................................................50
TAX VARIANCE CALCULATION FOR PO MATCHED INVOICE 3
OBJECTIVE:
This whitepaper provides step by step guide to create Tax rate Variance (TRV), Tax exchange rate variance (TERV)
and Tax invoice price variance (TIPV) lines for PO matched invoice. The paper also provides a clarification of
accounting line generation and setup of account derivation rule.
TERMS USED:
Tax rate Variance (TRV): Tax Rate Variance reflects the tax variance between the invoice and the PO
distributions due to difference in tax applicability. Tax Rate Variance is normally computed for the Non
recoverable portion of the Tax
Tax exchange rate variance (TERV): Tax Variance between invoice and PO distributions due to exchange
rate variance.
Tax invoice price variance (TIPV): Tax Variance between invoice and PO distributions due to Unit Price
variance.
Journal Line Definition - JLD
Journal Line Type – JLT
Subledger Accounting Method - SLAM
NOTE: Once regime to rate flow is completed enable the check box
Note: PO taxes will be copied although the "Enforce Tax from Reference Documents" is unselected. If Enforce Tax
from Reference Document is set to Yes- Tax engine picks the Regime, Tax and copy the Status, Rate code, Rate %
(It does not do rate determination).
If it is not set, Engine picks the Regime, Tax from PO and do the determination for Status, Rate Code, Rate %
TAX VARIANCE CALCULATION FOR PO MATCHED INVOICE 11
Note: Taxes Used are non recoverable tax and non inclusive
Case 1:
Create a PO matched Invoice with same tax rate code in PO and AP.(No TRV, TERV and TPV generated )
Case 2:
Create an Expense type PO matched Invoice with different tax rate code in PO and AP (TRV) generated.
i) PO with accrue at receipt un-checked.
ii) PO with accrue at receipt checked.
Case 3:
Create an Inventory type PO matched Invoice with different tax rate code in PO and AP (TRV) generated.
Case 4:
Create an expense type PO matched Invoice with different exchange rate and same tax rate code in PO and AP
(TERV generated)
i) PO with accrue at receipt un-checked
ii) PO with accrue at receipt checked.
Case 5:
Create an inventory type PO matched Invoice with different exchange rate and same tax rate code in PO and AP
(TERV generated)
Case 6:
Create an Expense type PO matched Invoice with different unit price and same tax rate code in PO and AP (TIPV
generated)
i) PO with accrue at receipt un-checked
ii) PO with accrue at receipt checked
Case 7:
Create an inventory type PO matched Invoice with different unit price and same tax rate code in PO and AP (TIPV
generated)
TAX VARIANCE CALCULATION FOR PO MATCHED INVOICE 12
NOTE: Since it is expense type PO, PO Charge account gets defaulted from PO to AP for item expense line and
NON RECOVERABLE TAX line takes the account from item expense line
Case 2: Create an Expense type PO matched Invoice with different tax rate code in PO and AP
(TRV) generated.
NAVIGATION: Purchasing Super User > Purchase Orders > Purchase Orders >Actions >Manage Tax
NOTE: Tax which gets defaulted from PO is PO_TAX_RATE. Override the PO_TAX_RATE to AP_TAX_RATE.
NOTE: Since AP_TAX_RATE code is not present in PO, hence the difference in tax rate code is determined by line
type code in AP as TAX RATE VARIANCE
TAX VARIANCE CALCULATION FOR PO MATCHED INVOICE 18
NOTE: Since PO_TAX_RATE code is not present in AP, hence the difference in tax rate code is determined by line
type code in AP as TAX RATE VARIANCE.
NOTE: For Expense type PO with accrue at receipt unchecked,Non Recoverable tax and TRV lines accounts are
same, hence ‘Accounting class codes’ are merged for non recoverable tax and TRV lines.
For Example: In the above scenario distribution created for amount 1 is having line type code as Tax Rate Variance
(TRV) but while accounting the transactions, ‘Accounting class code’ considered as ‘Non-Recoverable tax ‘.
TAX VARIANCE CALCULATION FOR PO MATCHED INVOICE 19
STEP 7 : Journal Line Type Setup for Tax Rate Variance in Standard Accrual (Subledger Accounting Method)
Navigation: Payables> Setup>Subledger Accounting Setup> Accounting Methods Builder > Methods and
Definitions> Journal Line Definition
Note: The TRV JLT will be triggered when conditions mentioned in above screen shot is met. In above case ‘Accrue
on receipt’ option is equal to ‘NO’; Hence TRV was not triggered and merged with Non Rec Tax line.
Case 2: Create an Expense type PO matched Invoice with different tax rate code in PO and AP
(TRV) generated.
ii) PO with accrue at receipt checked
STEP 1: Create a PO
NAVIGATION: Purchasing Super User > Purchase Orders > Purchase Orders
TAX VARIANCE CALCULATION FOR PO MATCHED INVOICE 20
NOTE: Item Line account populated is PO accrual account for PO matched invoice with accrue @ receipt checked
NOTE: Tax Rate Variance account populated is PO Charge account for PO matched invoice where accrue @ receipt
is checked
TAX VARIANCE CALCULATION FOR PO MATCHED INVOICE 24
NOTE: In this case the non rec account is different from the TRV account .This is because the non rec account is
defaulted from item line which is PO accrual account and TRV account is defaulted as PO charge account.
Case 3:
Create an Inventory type PO matched Invoice with different tax rate code in PO and AP (TRV)
generated
STEP 1: Create a PO
NAVIGATION: Purchasing Super User > Purchase Orders > Purchase Orders
Case 4:
Create an expense type PO matched Invoice with different exchange rate and same tax rate code in
PO and AP (TERV generated)
Note : Ledger currency is USD, PO Currency is INR and Conversion rate is 55.
TAX VARIANCE CALCULATION FOR PO MATCHED INVOICE 31
Note : For TERV lines , invoice distribution amount will be zero and functional amount will be populated as a
difference between AP and PO exchange rate.
TERV = (Invoice Exchange rate – PO Exchange rate)*Invoice tax amount.
For above case TERV= (50-55)*0.5 = -2.5
TERV account = PO Charge account.
NOTE: For Expense type PO with accrue at receipt unchecked, CCID for non recoverable tax and TERV lines are
same. Hence ‘Accounting class codes’ are merged for non recoverable tax and TERV lines.
For Example: In the above scenario distribution base amount 2.5 is having line type code as TERV. But while
accounting the transactions, ‘Accounting class code’ is considered as ‘Non-Recoverable tax‘.
For TERV line, Invoice distribution amount is zero and base amount (functional) is 2.5. Hence while accounting
entered amount is zero, whereas accounted amount is populated as 2.5.
STEP 5: Journal Line Type Setup for Tax Exchange Rate Variance in Standard Accrual (Subledger Accounting
Method)
Navigation: Payables> Setup>Subledger Accounting Setup> Accounting Methods Builder > Methods and
Definitions> Journal Line Definition
TAX VARIANCE CALCULATION FOR PO MATCHED INVOICE 34
Note: The TERV JLT will be triggered when conditions mentioned in above screen shot is met. In above case
‘Accrue on receipt’ option is equal to ‘NO’ , Hence TERV was not triggered and merged with Non Rec Tax line.
Case 4:
Create an expense type PO matched Invoice with different exchange rate and same tax rate code in
PO and AP (TERV generated)
Note: For PO matched invoice with ‘Accrue at Receipt’ checked accounting class code generated is TERV.
STEP 4: Account Derivation Rule Setup for Tax Exchange Rate Variance in Standard Accrual (Subledger
Accounting Method)
Navigation: Payables> Setup>Subledger Accounting Setup> Accounting Methods Builder > Methods and
Definitions> Journal Line Definitions
TAX VARIANCE CALCULATION FOR PO MATCHED INVOICE 36
TAX VARIANCE CALCULATION FOR PO MATCHED INVOICE 37
Note: When ‘Accrue on Receipt’ option is checked, the source for TERV account is ‘Purchase Order Variance
account’
Case 5:
Create an inventory type PO matched Invoice with different exchange rate and same tax rate code
in PO and AP (TERV generated)
Note: At the time of invoice validation TERV account is defaulted from PO Accrual account. But at the time of
accounting TERV account is derived based on account derivation rule set in SLAM
STEP 4: Account Derivation Rule Setup for Tax Exchange Rate Variance in Standard Accrual (Subledger
Accounting Method)
TAX VARIANCE CALCULATION FOR PO MATCHED INVOICE 41
Navigation: Payables> Setup>Subledger Accounting Setup> Accounting Methods Builder > Methods and
Definitions> Journal Line Definitions
Note: The Source for TERV line is ‘Purchase Order Rate variance’ when PO destination type is inventory. When
functional amount for TERV line is greater than zero, then ‘PO Rate Gain Variance’ account is used, else ‘PO Rate
Loss Variance’ account is used.
TAX VARIANCE CALCULATION FOR PO MATCHED INVOICE 42
CASE 6: Create an Expense type PO matched Invoice with different unit price and same tax rate
code in PO and AP (TIPV generated)
NOTE: For Expense type PO with accrue at receipt unchecked; non recoverable tax and TIPV lines accounts are
same. Hence ‘Accounting class codes’ are merged for non recoverable tax and TIPV lines.
For Example: In above scenario, distribution is created for amount 0.25 and has line type code as TIPV. While
accounting the transaction ‘accounting class code’ is considered as ‘Non-Recoverable tax‘.
STEP 7: Journal Line Type Setup for Tax Rate Variance in Standard Accrual (Subledger Accounting Method)
Navigation: Payables> Setup>Subledger Accounting Setup> Accounting Methods Builder > Methods and
Definitions> Journal Line Definition
TAX VARIANCE CALCULATION FOR PO MATCHED INVOICE 46
Note: TIPV JLT will be triggered when conditions mentioned in above screen shot is met.
Here ‘Accrue on receipt’ option is equal to ‘NO’. So, TIPV was not triggered and merged with non rec tax line.
NOTE: For PO with destination type as ‘Expense’ and ‘Accrue on Receipt’ checked, TIPV account is defaulted from
PO Charge account.
TAX VARIANCE CALCULATION FOR PO MATCHED INVOICE 48
STEP 4: Account derivation rule for TIPV in Standard Accrual (Subledger Accounting Method)
Navigation: Payables> Setup>Subledger Accounting Setup> Accounting Methods Builder > Methods and
Definitions> Journal Line Definition
Note: Source for TIPV account is ‘Invoice distribution Account’. So the account defaulted at invoice distribution
level for TIPV line will be used for accounting.
TAX VARIANCE CALCULATION FOR PO MATCHED INVOICE 49
CASE 7: Create an inventory type PO matched Invoice with different unit price and same tax rate
code in PO and AP (TIPV generated)
Note: Unit price at the time of PO matching is considered as 5. Calculation of TIPV remains same as explained
above.
Note: Account derivation rule for inventory type PO is same as explained above.
TAX VARIANCE CALCULATION FOR PO MATCHED INVOICE 52
REFERENCE
This paper is intended to supplement the following reference materials, which should also be studied for a full
understanding of the topic.
a) E-Business Tax Implementation Guide
b) Oracle Payables User Guide
c) Oracle Purchasing User Guide
CONCLUSION
The goal of this document is to help you learn and understand the generation of TRV, TERV and TIPV lines. For a
more detailed explanation, please refer to E-Business Tax Implementation guide and Oracle Payables User Guide.