Presenting SAP Fixed Assets Capitalization Best Practices

Asset Capitalization – Best Practices

Presenter:
Kent Bettisworth
kent@bettisworthassociates.com
Peritus SAP Expert, www.peritusonline.com
President, BETTISWORTH & ASSOCIATES
Copyright © BETTISWORTH & ASSOCIATES, INC. - All rights reserved

What We’ll Cover …

Navigating the options
Selecting the best approach
Uncovering the simple steps
Evaluating the techniques
Matching the configuration
Wrap-up

2

Introduction

Capitalizing assets accurately and
efficiently is mandatory, but sometimes
difficult.
Whether the asset is a single laptop
computer purchased on an invoice or an
offshore oil platform constructed using
hundreds of contracts, you can leverage a
multitude of capitalization approaches.

3

In This Session ...

Navigate the pros and cons of capitalization
options, from general ledger to asset-centric to
project-centric, and learn the key SAP
configuration steps.
Inspect detailed take-home charts to select the
best approach to maximize your organization’s
capitalization efficiency.
Uncover the SAP transactions that combine
several time-consuming capitalization steps into
a single simple step.
Pinpoint little-known capitalization techniques
that enhance capital budget reporting and
evaluate when it makes sense to use each.

4

Asset Capitalization Defined

An asset has two stages in its life that are
relevant for financial and management
accounting:
 Under construction (AuC asset)
 Productive life (Final asset)
Posting $ to the Asset under Construction
(AuC) asset,
And settlement of those $ to a Final asset,
Is the “Asset Capitalization“ process.

5


Wrap-up

6

Capitalization Methods and Procedures

There are 3 basic methods
 General ledger, Asset-centric, and Project-centric
And 3 capitalization procedures
 Direct journal posting
 Line item settlement– invoice by invoice, transfer
posted costs from a project (Order or Work
Breakdown Structure (WBS)) OR Assets under
Construction (AuC) not linked to projects to an asset
or assets.
 Summary settlement – in lump sum amounts or by
percentages, transfer posted costs from a project
(Orders or WBS) to an asset or assets. Individual line
by line invoice transfers are not allowed.

7

Line Item versus Summary Settlement
Settlement Rules Cost Receivers
Project Invoices 100 %
Building Asset
1
Invoice 1 - Design

 Line item
60 %
Heat System
Invoice 2 – 30 %
Asset
2
Equipment
settlement
10 % Landscape Asset
75 %
Cost Center
3
Invoice 3 - Install 25 %

Project - Order or 50 %
Building Asset
1
WBS element
Invoice 1 - Design
Heat System
25 %
Summary
 2 Asset
Invoice 2 –
15%
settlement Equipment 3 Landscape Asset

Cost Center
4
Invoice 3 - Install 10 %

8

General Ledger

No sub-ledger systems exist for
 Purchasing
 Assets
 Projects
 Capital Budgeting
Use MS Excel or other applications
 Detail fixed asset records
 Depreciation calculation
 Project control
 Capital spending management
Method – Post $ direct to balance sheet account
 FB-50 - Capitalization with manual journal entry

9

Asset-Centric

Asset Management module implemented with
 General Ledger
 Accounts Payable
 Purchasing
Capitalization method & procedure
 Post $ direct to AuC (under Construction) or Final
Asset
• F-50 or ABZON - General ledger journal
• ABUMN or ABT1N – Asset transfer
• MIGO / MIRO - Goods receipt or Invoice receipt
• F-90 - Accounts Payable journal
 Capitalize from AuC to Final Asset
• AIAB – Create line item settlement rules
• AIBU – Settle to final asset

10

Project-Centric

Capital project management is high profile with full
integration across multiple sub-ledgers/systems
 Projects (WBS elements or orders)
 Capital Budgeting
 Purchasing
 Assets
 General Ledger
Capitalization method and procedure
 Post $ direct to a Project
• Using variety of methods
 Capitalize from Project to AuC then Final Asset
• CJIC or KOB5 Select specific line items for settlement
• CJ88/CJ8G or KO88/KO8G Summary settlement

11


Wrap-up

12

General Ledger Pros and Cons
Pros
• Easy to implement
Cons
• Manual journal postings
• Application risk
• Changes explained by G/L line item
analysis
• Manual depreciation forecasts
• No integrated project control or capital
budget
Asset process attributes
• Minimal asset records
• Small volume of asset acquisitions
• No capital projects
13

Asset-Centric Pros and Cons

Pros
 Simultaneous posting to specific asset(s) & G/L
 Allocate to multiple assets via AuC
 Post via G/L, Invoice, Purchase Order or Asset
transaction
 Automated depreciation forecasts
Cons
 No project management support
 No integrated capital budget control
 Moderate to high number of asset records
 Medium volume of asset acquisitions and activity
 Capital projects are simple and/or few

14

Project-Centric Pros and Cons

Pros (All benefits of asset-centric approach and…)
 Manage expense and capital in single project
 Include future acquisitions in depreciation forecast
 Integrated project control & capital budget
Cons
 Complex process and integration training
 High number of asset records
 Large volume of asset acquisitions
 Numerous capital projects with varied complexity

15

Asset Capitalization Chart – General
Ledger
Capitalization Integration Capitalization
Attributes Pro Con
Approach Need Method
Manual
Few assets postings
Post direct to
Low Easy to
General
G/L account:
No implement Application risk
Ledger
subledger
1) FB-50
Variance
Journal
Use MS analysis via
Excel G/L line item
reviews
No projects
Manual
depreciation
forecasts

No budget or
project
integration

16

Asset Capitalization Chart –
Asset-Centric
Attributes Pro Con
Simultaneous Post direct to
Moderate Moderate No project
posting to
Asset-Centric AuC or Asset:
number of management
ledgers
assets & support
1) F-50 or ABZON
activity
Allocate to
– General ledger
No integrated
multiple
journal
Asset capital budget
assets
subledger
2) ABUMN or
Post to assets
Purchasing ABT1N – Asset
with a variety
, A/P, & G/L transfers
of methods
sub-ledger
Automated 3) MIGO or MIRO
Simple
depreciation – Goods receipt
projects
forecasts Invoice receipt

4) F-90 Accounts
Payable journal

17

Project-Centric
Attributes Pro Con
Manage
Project-
High number High Complex process, Post direct to
capital &
Centric
of assets & training, and Project:
expense in
significant support
1) Variety of
single
acquisitions
methods
project
All sub-
Enhanced Settle to AuC:
ledgers plus
depreciation
Projects and
forecast
Capital 1) KOB5 Order or
including
Budgeting CJIC WBS element
planned
using line item
investments
High volume, settlement
Wide range of
Integrated
Simple to
budget & 2) KO88 / KO8G
Complex
project Order or
projects
control CJ88 / CJ8G WBS
element using
summary
settlement
18

Capitalization Approach Selection Chart
Capitalization Approach Many assets +
High Variety of project
complexity
Project-centric
System Integration
System Integration

Asset Attributes
Asset Attributes
Asset-centric

General ledger
Few assets
+ Simple
Highprojects
Low
Process Efficiency
19


Wrap-up

20

Uncovering the Simple Steps – 2
Activities in 1
Asset transaction ABZON
 Create the asset record and,
 Post the $
Purchase Order transaction ME22N
 Create the purchase order and,
 Create the asset record
Project transactions CJ20N for WBS
or KO04 for Order
 Create the asset record and
 Create the final asset settlement rule

21

2 Activities in 1 – Asset Transaction
ABZON

22

2 Activities in 1 – Purchase Order
ME22N

23

2 Activities in 1 - Project – Order Manager
KO04

24

2 Activities in 1 – Project Builder CJ20N

25


Wrap-up

26

Capitalization Techniques –
Project-centric
Enhance capital budget reporting by timely and
•
accurate capitalization of costs
To the asset under construction

To the final asset

To overhead expense


27

Capitalization Techniques –
Project-centric (cont.)
4 processing techniques
 Automatic – default
 Periodic – for non-capital costs
 Partial – for capital costs prior to project completion
 Full – for both capital and non-capital cost settlement
Combine with 4 settlement rule types
 PRE, AUC, PER, and FUL
And 3 settlement structure techniques
 Hierarchy settlement (direct & multi-level)
 Capitalization versions ( by depreciation area &
percentage)
 Source settlement (based on account)

28

Avoid the Project Hierarchy Settlement
Pitfalls!
Enhance project & budget hierarchy reports by
 Displaying costs where they originated & at roll-up levels
Bad things can happen, if you have multi-level
settlements
 Skip levels by settling the lowest WBS to the highest
WBS
• All intervening levels do not see the settled $
• Budget control does not see the $
 Settle top-down to a lower level WBS element
• $ doubled up on sending level
• Budget control counts the values twice
 Settle to a different project
• Settled $ are not displayed in the WBS hierarchy
• Budget control does not see the $

29

Examples of Project Hierarchy
Settlement Pitfalls!
$100
$0

$0
$0

$100 $100 $100
$100

$100
$200 $100

$100
$100

$100
$100

30

Project Hierarchy Settlement Pitfall
Solutions!
Enhance project & budget hierarchy reports by:
Do NOT skip levels by settling the lowest WBS to
the highest WBS
NEVER settle top-down to a lower level WBS
element
Change the standard Hierarchy reports to:
 Display settlement cost element by creating as a value
category
 Remove settlement business transaction from actual
cost column

31

Techniques Using Capitalization
Version
Enhance capital
budget reporting
 Balance Sheet
Use for reporting Asset under Construction
Project - Order or WBS
capitalization Financial Depreciation
Area 01
differences between
countries $10
$10 Capitalization Version 1

Capitalization Cost Accounting
versions provide Depreciation Area 05
$10
ability to $6
Capitalization Version 2
$10
 $10
Allocate costs
proportionally
between expense and Income Statement

capital by Expense
depreciation area $4
 Based on account,
cost center, etc.
 Can be assigned by
asset class
32

Capitalization Techniques Based on
Source Account
Enhance capital budget reporting by
 Capitalizing certain accounts to specific AuC categories
such as buildings, equipment, land, etc OR specific
cost centers
 Capitalize certain accounts to specific Final asset
categories

Project - Order or $2500
10 Settlement to
WBS element
Multiple AuCs,
Cost element 1 –
$1000 With Final
Design 20
Settlement to
Cost element 2 –
Specific Asset
Equipment
$500
Classes
Cost element 3 – 30
Equipment
Cost element 4 - $500
Settle to CO
40
Install

33

Using Capitalization Techniques to
Post $
Capitalization
AuC Asset Final Asset Expense Comments
Approach
General Ledger
Direct Post Direct Post Direct Post No special techniques

1) Transfer variant
Direct Post determines asset transaction
OR Direct Post type
Direct Post Asset Transfer OR 2) Capitalization version
Asset-centric
OR Line item settlement allocates between capital &
Line item settlement expense in depreciation
areas
If PRE or PER rule 1) Full processing will issue
If AuC rule exists,
exists, an error if balance remains
Project-centric
Use Automatic OR If FUL rule exists,
Use Automatic OR on project
Status < TECO
By Period OR Use Partial
By Period OR 2) Split capital & expense
Full
Full using source structure
If PER or FUL rule 1) Full processing will issue
If AuC rule exists, If FUL rule exists,
exists, an error if balance remains
Use Automatic OR Use Automatic
Use Automatic OR on project
Project-centric
By Period OR OR
By Period OR 2) Split capital & expense
Status = TECO
Full Full
Full using source structure

34


Wrap-up

35

General Ledger
AuC to Asset
Attributes Pro Con Capitalization
Procedure
Few Low Easy to Manual postings Post direct to Manual journal
assets implement G/L account:
Application risk Applicable
General Ledger
No 1) FB-50 Techniques:
subledger Variance analysis Journal None
via G/L line item
Use MS reviews
Excel
Manual
No depreciation
projects forecasts

No budget or
project
integration

SAP
SAP modules: FI-General ledger. No sub-ledgers are in use.
Configuration
User menu > FSSO – Maintain G/L in Company Code. Set reconciliation account to blank.
Steps
IMG > none

36

General Ledger Configuration

Balance sheet accounts
•
allow direct posting

37

Asset-Centric
Capitalization Integration AuC to Asset
Attributes Pro Con Capitalization Method
Approach Need Capitalization Procedure
Moderate Moderate Simultaneous No project 1) ABUMN – Asset
Asset-Centric Post direct to AuC
number of posting to management transfer using types
asset or Final Asset:
assets & ledgers support 348 – prior year asset or
activity 349 – current year asset
1) F-50 or ABZON –
Allocate to No integrated General ledger journal
Asset multiple assets capital budget
2) Line item settlement
subledger
2) ABUMN or ABT1N – a. AIAB – Create line
Post to assets
Asset transfers item settlement rules to
Purchasing, with a variety of
final assets
A/P, & G/L methods
sub-ledger b. AIBU – Settle to final
3) MIGO or MIRO –
Automated asset
Goods receipt
Simple depreciation Invoice receipt
projects forecasts Applicable Techniques:
4) F-90 Accounts 1) Capitalization version
Payable journal

SAP modules: FI-Asset Accounting ledger; LO-Purchasing; FI-A/P ledger; and FI-General ledger.
User menu > FSSO – Set fixed asset reconciliation G/L account to ’Assets’
IMG > AO90 – Assign G/L accounts to Chart of Depr.; MM – Set account assignment ‘A’ to allow assets
SAP
FI-AA – Confirm transaction types 120 mapped to Goods receipt screen & 100 to Invoice receipt screen
Configuration
OAOA – Set AuC class to line item settlement
Steps
OK07 – Set fixed asset receiver as required in settlement profile
OAAZ – Assign settlement profile to company code
OIB5, OKGK, AO69 – Setup capitalization versions
38

Asset-Centric Configuration

Asset
•
management
module is
implemented
with Chart of
Depreciation

39

Asset-Centric Configuration (cont.)

Balance sheet
accounts do not
allow direct
posting

GL and AM sub-
ledger
synchronized
through parallel
postings

40


Allow
acquisition of
assets on PO

Materials
management
> Purchasing
> Account
assignment

41


Asset accounting > Transactions > Determine
internal transaction types

42


OAOA – Define
asset class

Allows separate
or collective
settlement of
individual line
items, from an
AuC asset

43

OKO7 –
Create
settlement
profile

OAAZ –
Assign
settlement
profile to
company

44

OIB5 Assign
capitalization
versions to
depreciation area

OKGK Enter
different
capitalization
criteria for an
account or range
or accounts

AO69 Determine
income statement
account
45

Asset Capitalization Chart – Project-
Centric
Capitalization Integration Capitalization AuC to Asset
Attributes Pro Con
Approach Need Method Capitalization Procedure

1) CJIC or KOB5
High number High Manage Complex process,
Project-Centric Post direct to
Specific line item
of assets & capital & training, and Project:
settlement for WBS &
significant expense in support 1) Variety of
Orders
acquisitions single project methods
All sub- Enhanced 2) CJ88/CJ8G or
Settle to AuC:
ledgers plus depreciation KO88/KO8G Summary
Projects and forecast 1) KOB5 Order or settlement for WBS &
Capital including CJIC WBS element Orders
Budgeting planned using line item
investments settlement
Applicable Techniques:
High volume,
1) Automatic
Wide range of Integrated 2) KO88 / KO8G
Simple to budget & 2) Periodic
Order or
Complex project 3) Full
CJ88 / CJ8G WBS
projects control
4) Partial
element using
summary 5) Hierarchy settlement
settlement 6) Capitalization versions
7) Source assignment
SAP modules: IM-Investment Management; PS–Project Systems; CO-OPA Orders; FI-Asset Accounting ledger;
LO- Purchasing; FI-A/P; and FI-General ledger.
SAP
IMG > OITA- Create investment profile with settings for source, settlement type, & depreciation forecast rules
Configuration
OITB & OKEU- Create source structures
Steps
OKO7- Create settlement profile with optional & default receivers as well as default allocation rules
OPSA/KOT2_FUNCAREA – Create project profile or order type with default settlement profile & investment profile
46

Project-Centric Configuration

Investment Profile
Settlement Profile
(OITA)
(OKO7)

Determines number
Parameters
of AuCs
determine:
• By Source
• Requirement to settle
• Distribution methods
• Allowed receivers

Determines
Default structure
settlement procedure
settings determine:
• Summary
• Settlement by source
• Line item
account
• Active receivers

Copyright © BETTISWORTH & ASSOCIATES, INC. - All rights reserved www.bettisworthassociates.com 47

Project-Centric Configuration (cont.)
OITA - Investment profile,
•
when entered on project,
triggers the automatic AuC
and settlement rule
creation

Provides choice of
•
settlement

Allows depreciation
•
forecast based on planned
investments

48


Projects provide maximum possible choices for
•
capitalization objects (OKO7)
G/L accounts, cost centers, orders, WBS elements, fixed
•
asset
49

Source assignment technique
 OKEU – Create source assignments
• Can specify default allocations to cost centers
 Project system > Costs > Automatic and Periodic
Allocations > Settlement > Settlement profile > Create
settlement profile – enter default source in appropriate
settlement profile

50


Assign default settlement & investment
profiles
 WBS elements – OPSA (assign both profiles)

51

Assign default settlement & investment profiles
 Orders - KOT2_FUNCAREA (assign settlement profile)
 Orders - KOM1 – Create model order (assign investment
profile)

52


Wrap-up

53

Resources

Help.sap.com
 SAP Library > SAP ERP Central Component
>Financials > Project Systems > Costs >
Automatic & Periodic Allocations > Project
Settlement>Project Settlement Recommendations
Other
 CJ70 Display line item settlement rules by project
OSS Notes
 51971 Display actual costs after settlement;
reissued November 21, 2005
 65906 Procedures for settlement of investment
measures; February 7, 2005

54

7 Key Points to Take Home

Multiple asset capitalization approaches fit any
scenario
You can employ more than one approach, but
make certain the chosen method fits efficiently
Evaluate your current situation, and measure your
efficiency using the ‘Capitalization Approach
Selection Chart’
Maximize your use of the one-step transactions if
they will keep your process simple!
Enhance your project & budget reports by
avoiding level skipping and top-down settlements

55

7 Key Points to Take Home (cont.)

The source assignment technique efficiently
adds significant granularity to your asset
reporting capabilities
Maximize your use of the ‘Asset Capitalization
Charts’ by comparing to your configuration and
capitalization processes

56

How to Contact Me

How to contact me:
Kent Bettisworth
713-467-8374
www.bettisworthassociates.com

Send e-mail to kent@bettisworthassociates.com
to register for newsletter.

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www.mysaptraininghome.com
Copyright © BETTISWORTH & ASSOCIATES, INC. - All rightswww.bettisworthassociates.com
reserved
57

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Presenting SAP Fixed Assets Capitalization Best Practices

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