Free Goods - FI & Inventory valuation Impact

Question

Dear All,
I would like to know what will be the FI & Inventory valuation impacts in the below 2 cases
1.  When free goods indicator is flagged for an item in PO.
2. When free goods indicator is not flagged, but GR-IV and Invoice receipt indicator is unchecked.
I understand what free goods are, but what i need to know is, how will the inventory be valued in both the cases & what will be the FI impact.
I hope my question is clear, await inputs.
Regards,
Vivek

Answer 1

Hi,
First of all, if you activate "Free" indicator then "GR based IV" and "Invoice Receipt" indicators get deactivated automatically or when you deactivate "Invoice Receipt" indicator then "Free" indicator gets activated automatically. It's viceversa.
Now It depends upon the Price Control you have maintained in the material master.
Once you activate "Free" item indicator OR deactivate "Invoice Receipt" indicator in PO then at the time of GR if;
Price Control is "V" (MAP)
Goods Receipt happens on zero value and inturn reduces the MAP of the material which affects the material valuation. And No FI Entry will get generated.
For e.g. Current Stock of Material = 100 KG and MAP = 110 INR so Material Value = 11000 INR
After GR of 10 KG on FOC basis, Current Stock of Material = 110 KG, Material Value = 11000 INR so MAP = 100 INR
Price Control "S" (Standard Price)
After GR, there is not any effect on the Standard price of the material or material valuation.
For e.g. Current Stock of Material = 100 KG and SP = 110 INR so Material Value = 11000 INR
After GR of 10 KG on FOC basis, Current Stock of Material = 110 KG, Material Value = 11000 INR and SP = 110 INR
Here At the time of GR following A/c entry get generated;
Price Difference A/c - Dr - 1100 INR
GR/IR Clearing A/c - Cr - 1100 INR