05 Asset Accounting

SI0014
Computerized Accounting
Application II
Asset Accounting
ACCOUNTING PROGRAM
Overview
• Introduce the asset master records and see how
posting to them is connected to the General
Ledger through a reconciliation account
• Introduce the Asset Explorer report and show
how it summarizes posted and planned activities
for an asset
• Examine some of the closing procedures in Asset
Accounting, such as running depreciation and
executing the Asset History Sheet report
2
Unit Objectives
After completing this unit, you’ll be able to:
• Maintain an asset master record
• Describe the role of an asset class
• Describe the role of depreciation areas in asset
accounting
• Post various asset transactions
• Print inventory lists
• Create asset history sheets
3
Contents
• Master Records in Asset Accounting
• Standard Accounting Transactions in Asset
Accounting
• Closing Procedures in Asset Accounting
4
Master Records in Asset
Accounting
Lesson Overview
• Discuss the asset master record and examine the
key components of the asset master record
• View the link to the general ledger reconciliation
account from the asset master record
• Learn the asset class, which is similar to the
account group in G/L, AP, and AR
• Study deprecation areas and examine how
depreciation is calculated in mySAP ERP
Financials
6
Lesson Objectives
After completing this lesson, you’ll be able to:
accounting
7
Assets
• An organization may possess a variety of assets,
including tangible, intangible, and financial assets
• Tangible assets have a physical form, whereas
intangible assets are nonphysical
• Examples of tangible assets are computers, machinery, and
buildings
• Examples of intangible assets are intellectual property,
patents, and trademarks
• Financial assets include a variety of financial
instruments such as securities, long‐term notes
(debts), and mortgages
• Companies use asset accounting to track the
financial consequences associated with the entire
lifecycle of an asset, from acquisition to disposal
8
Assets (Cont.)
• Accounting data about each asset are maintained in asset
subledger accounts
• These data include acquisition costs and depreciation
• Like other subledger accounts (such as customer and vendor
accounts), asset subledger accounts are created when the
asset master record is created
• The subledger account and the master record share the same
account number
• As in the case of customer and vendor accounts, asset
accounts are associated with a reconciliation account in the
general ledger
• However, in contrast with customer and vendor accounts, the
association between an asset account and a reconciliation account is
not straightforward
• Rather, it depends on which asset class the asset belongs to
9
Assets and Organizational Units
of Financial Accounting
10
Assets and Organizational Units
of Financial Accounting
• Each asset belongs to a company code and business area
• All postings made for the asset (acquisitions, retirements, depreciation, and
so on) are posted in the assigned company code and business area
• Assets are assigned to a company code and, by virtue of this assignment, all
asset‐related transactions are posted to the general ledger associated with
the company code
• This arrangement ensures that asset transactions are properly reflected in the
company’s financial statements
• Additionally, user can assign the asset to various Management Accounting
objects (cost center, internal order, activity type, and so on) and logistic
organizational units (for reporting and selection purposes only)
• In asset accounting, the primary cost is depreciation expense, which is the
loss in value of an asset over time
• When a company incurs a depreciation expense, it must allocate that expense to a cost
center
11
Asset Class
12
Asset Class
• An asset class serves the same functions as an account group for customers,
vendors, and G/L accounts
• An asset class is a grouping of assets that possess similar characteristics
• For example, all computing equipment such as computers, printers, and monitors can
be included in one asset class
• Each asset class is associated with a specific reconciliation account in the
general ledger account
• The asset class is the main criterion when defining the asset
• Each asset must be assigned to one asset class at the time of creation
• In the asset class, user can define certain control parameters and default values for
calculating depreciation and other master data
• The asset class is similar to the account group in that it defines the screen
layout of the asset master record and has a number range assigned to it
• Assets that do not appear in the same line item of the balance sheet (such as
buildings and equipment) are typically assigned to different asset classes
13
Asset Class (Cont.)
• Additionally, there is at least one special asset class for assets under
construction and one for low‐value assets
• E.g. the asset classes used by IDES for this are:
• 4000 for assets under construction
• 5000 for low‐value assets
• User can also create asset classes for intangible assets and leased assets
• Functions are available for processing leases
• The Plant Maintenance (PM) component is used for the technical
management of assets
• The Treasury (TR) component is used for managing financial assets
• Finally, each asset class includes a variety of parameters that determine
how an asset belonging to that class is treated
• The two most important parameters are account determination and
depreciation
14
Asset Valuation
• Often asset balances and transactions need to be
valuated differently for various purposes
• User may, for example, use various valuation
methods for:
• Financial statements based on regional requirements
• Financial statements for tax purposes (if a different
deprecation method is allowed)
• Controlling (costing)
• Parallel financial reporting for group financial
statements (per IAS, US GAAP, and so on)
• Replacement value (using an index figure)
15
Depreciation Areas
16
Depreciation Areas
• Depreciation areas are standard delivered and
are country specific
• They contain all the rules for depreciating various
types of assets, based on country tax laws, for
example
• To keep more than one valuation basis,
depreciation areas are kept in the SAP system
• Separate transaction figures are kept in each
area:
• Per asset and depreciation area
• For individual value components such as balances,
depreciation, remaining book value
17
Control Data in Depreciation
Areas
18
Control Data in Depreciation
Areas
• In the asset master record, different data for
valuation areas are stored
• These data control the calculation of normal and
special depreciations for the respective valuation
areas
• User can thus use a different depreciation
method for general business procedures from
the depreciation method required by the tax
authorities
19
Reconciliation Accounts for
Assets
• The asset is attached to the general ledger using a
reconciliation account
• The reconciliation account for each asset in the asset subledger
account is determined by its association with an asset class
• This association, referred to as account determination
• Contrary to customers and vendors, the reconciliation
account is not put directly in the master record of the
asset because the asset class is tied to an account
determination key, which points to the various accounts
to be posted to for various transactions
• Only the APC account (Acquisition and Production Cost)
and accumulated depreciation are reconciliation
accounts
• Other accounts that the account determination key may
point to are not reconciliation accounts
20
Assets (Example)
• The next figure shows three of the five
reconciliation accounts included in company’s
general ledger as well as four of company’s asset
classes
• Note that office equipment and office computers are
associated with the same reconciliation account
• Thus, two or more asset classes can be associated
with the same reconciliation account
• Going further, asset class vehicles and asset class
office computers both have two assets, which in turn
have individual subledger accounts associated with
them
21
Assets (Example)
22
Account Determination
23
Account Determination
• Since the depreciation areas in asset accounting do not exist in the
general ledger, these values have to be posted to various G/L accounts in
the general ledger
• The G/L accounts are then used in various financial statement versions
(financial statements per GAAP, financial statements for tax authorities,
group financial statements, and so on)
• The following G/L accounts are used in various financial statement
versions:
• Balance sheet accounts, which record the adjustments to the asset's value
• Depreciation accounts for depreciation and appreciation
• The assignment of the G/L accounts to different valuation areas is stored
in one single account assignment key
• This key is entered in the asset class and appears as a standard value on the
asset master record
• Assets of the same asset class all have the same account assignment key, that
is, their values are all posted to the same reconciliation accounts
24
Account Determination (Cont.)
• In the General tab of an asset master record, user can
see the account determination key
• From the master record, user can drill down on the
account assignment key to the APC account
(Acquisition and Production Cost), the reconciliation
account posted to when the asset is acquired
• Many companies prefer to keep parallel valuations in
asset accounting (either statistically or for
information purposes) and not in the general ledger
• In this case, user does not need to make the related G/L
account assignments
25
Group Assets and Subnumbers
26
• For reporting purposes, components of an asset can be kept
under asset subnumbers, and assets can be combined into
group assets
• The main asset is assigned the subnumber 0, allowing the
asset subnumbers to be assigned as desired
• Group assets are assets that are depreciated at the top group
level (such as a telephone line that has many telephone poles,
each of which is, in itself, an asset) or a production line that
has many machines
• Subnumbers are used to represent components of an asset
• E.g.: A computer is the main asset (subnumber 0)
• The different parts of a computer are created as subnumbers, for
example, the mouse and the keyboard
• A group asset has its own master data
• Several main assets can be assigned to a group asset
27
(Cont.)
• Depreciation is calculated at the group asset level
• This is important in certain industries, such as
telecommunications
• In the USA, for tax reporting, valuations are done at
group level
• This means that not every asset has to be evaluated
individually
• Each individual asset in the group must be
retired before the group asset can be retired
28
Lesson Summary
You should now be able to:
accounting
29
Standard Accounting
Transactions in Asset
Accounting
Lesson Overview
• Discuss daily transactions with assets
• Review the asset explorer and see how it is
updated by posting transactions to the asset
31
Lesson Objectives
32
Transaction Type
33
Transaction Type
• The transaction type is an addition to the asset posting keys 70 (debit)
and 75 (credit)
• It has to be included when posting to an asset account
• It helps the subledger system analyze the transaction
• The transaction type is necessary for asset accounting because it
specifies exactly where the asset posting is listed in the asset history
sheet
• The transaction type is the distinguishing characteristic of the various
asset postings, for example:
• Buying and selling
• Credit memos
• Acquisitions from internal production
• Adjustment postings
• Retirements without revenue
• Depreciation and appreciation
34
Asset Transactions
35
Asset Transactions
• A company typically acquires an asset and keeps it for a certain
amount of time, after which it is no longer useful
• A variety of activities or transactions are associated with the asset
during its lifecycle
• The most common transactions types are acquisition, depreciation,
and retirement
• Asset transactions (acquisitions, retirements) can be posted in
various ways to meet the organizational and business requirements
of the company
36
Asset Transactions (Cont.)
• In Assets Accounting, user can post in the
following ways:
• Without a vendor or a purchase order; the offsetting
entry is made to a G/L clearing account
• To a vendor, but without reference to a purchase
order
• Via materials management using the functions
purchase order, goods receipt, and invoice receipt
• When posting to accounts of two subsidiary
ledgers, that is, to the asset and to the vendor, the
reconciliation accounts of both subsidiary
ledgers are updated in the general ledger
37
Document Entry Screen for
Asset Acquisition
38
Acquisition
• An asset can be acquired either externally or through
internal processes (e.g. the production process)
• For assets produced internally, a special asset class,
assets under construction, is used during production, and
the costs (materials, labor, etc.) are tracked in a
corresponding general ledger reconciliation account
• For assets obtained externally, three options are
available:
• (1) purchase from an established vendor without using the
purchasing process;
• (2) purchase from an established vendor using the purchasing
process; and
• (3) purchase from a one‐time vendor, or a vendor for whom
master data (and therefore a subledger account) are not
maintained
39
Acquisition (Cont.)
• In the first scenario, a company purchases an asset from an established
vendor but does not employ the full purchasing process
• That is, a purchase order is not created
• Instead, the accounting impact of the acquisition is manually recorded in
relevant general ledger and subledger accounts
• The process is similar to the one described in the accounts payable
accounting process
• In this scenario, however, the company uses the vendor subledger account
and a corresponding accounts payable reconciliation account instead of the
supplies expense account
• In the second scenario, a company purchases from an established vendor
using the entire purchasing process, which involves a purchase order, a
goods receipt, an invoice receipt, and payment
• The accounting impact is very similar to the first scenario, but the impacts
are automatically recorded by the steps in the purchasing process
40
Acquisition (Cont.)
• In the final scenario, the asset is purchased from a
one‐time vendor or a vendor for whom the company
does not maintain master data
• In this case, a vendor subledger account does not exist
• The accounting impact of the acquisition is manually
recorded using the asset account (subledger), the
corresponding reconciliation account, and a specially
designated clearing account
• Recall that clearing accounts are used to hold data
temporarily until the data are moved to another account
• An alternative scenario may involve a loan, in which
case there is no accounts payable account or bank
account
• Rather, a notes payable account is used to clear the asset
acquisition clearing account
41
Acquisition (Example)
• The example illustrates the acquisition of an asset from a
one‐time vendor
• In this illustration, a company purchases a new desktop
computer from the vendor for $5,000, with payment to
be made at a later date
• As a result of this purchase, asset master data for the new
computer (Desktop Computer #14) are created
• This is a subledger account that is associated with the office
equipment and computers account in the general ledger
• When the purchase is completed (Step 1), the asset
subledger account is debited by $5,000, and the asset
acquisition clearing account is credited by the same
amount
• At the same time, the office equipment and computers account in
the general ledger, the reconciliation account, is debited
42
• When the company receives an invoice (Step 2), the
clearing account is “cleared” with a debit posting,
and a corresponding credit is posted to the payables–
miscellaneous account
• Note that this is not the same account as the one used in
the accounts payable process. In that process, the accounts
payable reconciliation account was used.
• In this case payables–miscellaneous is not a reconciliation
account and therefore can be posted to directly
• Finally, when the company pays for the computer via
a check (Step 3), the payables–miscellaneous
account is debited, and the bank account is credited
43
44
Depreciation
• Over time, an asset’s value diminishes due to wear and
tear
• This decrease in value is recorded as depreciation
• Thus, the value of an asset is equal to its acquisition value less
accumulated depreciation
• Depreciation can be ordinary or unplanned
• Ordinary depreciation refers to the planned, periodic, and
recurring decrease in the value of an asset due to normal usage
• In contrast, unplanned depreciation occurs when extraordinary
or unforeseen circumstances cause the asset to lose value faster
than normal
• The actual amount of asset depreciation depends on
several factors, primarily the type of depreciation
method the company employs, the asset’s useful life, and
its residual value
45
Depreciation (Cont.)
• Companies can select from a variety of depreciation methods, for
example, straight‐line and double‐declining balance
• In straightline depreciation, the asset is depreciated by the same amount
every year
• In declining balance, the asset is depreciated at a fixed percentage rate each
year
• In contrast to the straight‐line method, then, in this method the amount of
the depreciation decreases each year because the value of the asset
decreases each year
• Every asset has a useful life, which specifies how long the company
anticipates using the asset
• At the end of its useful life, an asset has a scrap or residual value
• This is the amount the company expects to receive when it disposes of the
asset
• Finally, an asset has a book value, which is the value of the asset after it is
depreciated
46
Depreciation (Example)
• From the previous example, assume that the
asset was purchased at the beginning of the year,
has a useful life of four years, and a residual
value of $1,000
• Using the straight‐line depreciation method, the
amount to be depreciated is the asset purchase
price ($5,000) less the residual value ($1,000),
which is $4,000
• This amount is to be depreciated over four years,
resulting in an annual depreciation expense of $1,000
47
• Figure below illustrates the double‐declining
balance method for the same asset
• The depreciation rate is equal to double the
depreciation rate for the straight‐line method
• The annual depreciation in the straight‐line method is
$1,000. Therefore the depreciation rate is $1,000
divided by $5,000, which is 20%.
• In the double‐declining balance method this rate is
doubled to 40%
48
• By comparing both methods, we can see that the
double‐declining balance method is an
accelerated depreciation method that allows the
company to expense the asset at a faster rate
than the straight‐line method
• Note that the book value cannot be less than the
residual value
• Consequently, the depreciation in the fourth year is a
fixed amount ($80) needed to bring the book value to
the residual value of $1,000
49
• A company selects a depreciation method based on a
variety of factors, including generally accepted
accounting principles, tax laws, and regulatory
requirements, to name a few
• Consequently, an asset can be valued differently for
different purposes
• For example, the same asset can be depreciated using one
method to satisfy legal and regulatory requirements but a
different method to address management’s needs
• Referring back to the computer purchase, for internal
purposes, the computer can be depreciated over two
years using the double‐declining balance method
• However, tax laws may require that it be depreciated over
five years using the straight line method
50
• Thus, an asset can be depreciated using different methods and
assumptions simultaneously
• This practice is called parallel depreciation or parallel valuation of assets,
and it is used to support the practice of parallel accounting
• These different calculations are maintained in different depreciation
areas
• Common depreciation areas vary across countries
• In the United States, the common areas are book depreciation, cost
accounting depreciation, and tax or legal depreciation
• Book depreciation is used to prepare financial statements for shareholders
and to meet regulatory requirements
• Cost accounting depreciation is used to allocate the cost of using the asset to
a cost center
• For example, the depreciation associated with a machine used in a production facility
is allocated to the production cost center
• Tax depreciation is used to file federal and state income tax returns
51
Retirement
• After an asset has completed its useful life, it is
disposed of, or retired
• Asset retirement may or may not generate
revenue
• If an asset does not generate revenue, then it is
scrapped
• An asset can be sold to an external entity
• The company may choose to utilize a fulfillment
process to dispose its assets
52
Assets Under Construction
53
Assets Under Construction
• The expenses for assets under construction can be managed in two
ways:
• In the application component Investment Management, user can create,
post, and manage investment orders or investment management projects
• These orders or projects are then reconciled with the asset under construction
• The Investment Management provides extensive functions for supporting investment
procedures
• If the Investment Management is not used, the asset under construction can
be posted to directly in asset accounting
• Once the asset is complete:
• Master data must be created (if it does not already exist) for the asset the
AUC will be settled to
• The values from the asset under construction account have to be settled to
one or more completed assets
• The costs are distributed to one or more assets with the help of a settlement rule
• This rule specifies which percentage of the AUC is settled with which asset
54
Asset Explorer
55
Asset Explorer
• The data associated with assets is complex and
includes information concerning acquisition,
depreciation, and retirement
• The simple reporting capabilities are not adequate
for asset accounting
• Consequently, companies rely on a reporting tool known as
the asset explorer
• The asset explorer provides an overview of all the
activities related to the asset, including acquisition
data, planned and posted depreciation for different
depreciation areas, and comparisons of data across
multiple years
• It also enables companies to drill down for details
regarding master data, transactions, and documents
56
Asset Explorer (Cont.)
• User can see transactions that have been posted to the asset
plus planned and posted depreciation per depreciation area,
per period, for each fiscal year
• User can see the details of accounting transactions
• Also, user can conveniently switch to view another asset without
leaving the screen
• The asset explorer distinguishes between planned values –
depreciation amounts that have not yet been posted to the
general ledger accounts – and posted values, which have been
posted
• Planned values must be periodically posted to the general
ledger
• Companies accomplish this task by executing a depreciation posting
run, which posts the planned values for the specified time period for
all depreciation areas to the appropriate general ledger accounts
• In addition, it charges the appropriate cost centers with the
depreciation expenses incurred
57
Asset Explorer
58
Asset Explorer (Example)
• The top part of the asset explorer identifies the asset and the fiscal year for
which the data are displayed (asset #100002, office furniture, and 2010,
respectively)
• The top left part lists available depreciation areas
• In the figure, two areas are available: book depreciation and tax depreciation
• Book depreciation has been selected
• The tabs in the middle part of the figure indicate the types of data that are
maintained in the asset explorer
• Note that the posted values tab is selected
• This tab displays the acquisition value of the asset and depreciation values that
were posted by the depreciation run
• The planned values tab includes planned depreciation values for all the
depreciation areas
• The comparisons tab displays data for multiple years, and the parameters tab
displays current settings for the parameters associated with the asset, such as
the useful life and the depreciation method
59
Asset Explorer (Example)
60
Lesson Summary
61
Closing Procedures in
Asset Accounting
Lesson Overview
• Study some of the closing operations in asset
accounting
• Perform the activities of creating an inventory
list and an asset history sheet in mySAP ERP
Financials
63
Lesson Objectives
64
Asset Closing
65
Asset Closing
• Closing can roughly be divided into two types of work:
• Legal requirements (mandates required by the government)
• Technical and organizational tasks (preparatory steps that are
necessary technically or that support the accounting
organization)
• With the Fiscal Year (FY) Change Program program, the
new year is opened
• This allows user to post to assets in the new fiscal year
• The Year‐End Closing Program checks whether:
• depreciation and asset values are posted in full
• assets contain errors or are incomplete
• If the program finds no errors, it updates the last closed
fiscal year for each depreciation area and it blocks
posting in Asset Accounting for the closed fiscal year
66
Asset Closing (Cont.)
• These two programs are generally not executed at
the same time
• The year‐end closing program is generally executed just
after the auditors have finished their work and before the
G/L is ready to close for the year
• On a calendar year, the fiscal year change program is
executed on or before January first and the year‐end
closing program is typically executed in late March, before
the books are presented for external purposes
• At the beginning of the new fiscal year, a technical
reconciliation is performed, which compares the
transaction figures in asset accounting with the
corresponding figures in the G/L accounts
• Afterward, inventory is taken and adjustment
postings are made, should any corrections be needed
67
Asset Closing (Cont.)
• The depreciation posting run posts the depreciation
to the general ledger
• Since only one depreciation area can post its asset
postings to the general ledger in real time (typically book
depreciation), the additional, relevant depreciation areas
are posted to the general ledger using periodic asset
account postings program
• These additional depreciation postings are necessary only
in some countries
• User can now create the asset history sheet, which is
a required report in Germany
• It is a useful report in all countries, as it shows the
beginning and ending book values of the assets and the
transactions involved
68
Inventory
69
Inventory
• User can create one or more inventory lists with
the SAP system for the inventory process
• The lists are given to employees who perform the
inventory
• These employees note all deviations in the list
and forward these to the Accounting department
• The employees in Accounting enter the
necessary corrections in the system
70
Depreciation Posting Run
71
• In financial accounting, an enterprise maintains a variety of depreciation
areas simultaneously
• As a consequence, the enterprise requires different types of financial
statements – for example, one type for external reporting and another
type for filing taxes
• For this reason, it maintains different financial statement versions, each of
which includes the appropriate depreciation related accounts
• All depreciation (normal depreciation, special depreciation, and
unplanned depreciation) is initially kept in the form of planned values in
asset accounting
• Only after the depreciation posting run has been completed is the
depreciation actually posted in asset accounting and in the general
ledger
• The depreciation is posted to the corresponding depreciation accounts
in the general ledger and to the assigned Management Accounting object
assigned to the asset master record
72
(Example)
• Figure below shows a company that uses two
depreciation areas to provide data to different
financial statements intended for different
audiences
• Specifically, the company includes book depreciation
data in the financial statements presented to
shareholders and tax depreciation data in the
statements intended for tax authorities
73
(Example)
74
Asset History Sheet
75
Asset History Sheet
• The asset history sheet is the most important and most
complete evaluation available for closing
• As with financial statements, the structure of the asset history
sheet is based heavily on country‐specific requirements
• It is thus possible to create many asset history sheet versions
• Each asset history sheet version contains various history sheet
groupings, such as the following:
• Book values at the beginning of the fiscal year
• Acquisitions
• Retirements
• Adjustment postings
• Depreciation
• Book values at the end of the fiscal year
76
Lesson Summary
77
Unit Summary
accounting
78
Test Your Knowledge
1. When creating an asset master record, how is the asset number
assigned?
2. What does the account determination key do for the asset?
3. Every asset belongs to a _____________________.
4. What must we use to post to an asset in conjunction with the posting
key?
5. A transaction type tells us where the posting is placed on the
_____________________.
6. What are the various methods with which acquisitions and
retirements can be posted in Asset Accounting?
7. What is the purpose of the asset explorer?
8. Depreciation is actually posted in asset accounting only after we do a
_____________________.
9. The asset history sheet gives us what type of information?
79

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