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Basic Concepts of Asset Accounting

In SAP

Prepared by Prabhu Ramanathan R


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Synopsis

-Introduction -Asset Accounting in SAP -AA Basic Concepts -Conclusion

Asset Accounting Introduction:Asset: An asset is anything owned, whether in possession or by right to take possession by a person or a group acting together, eg:- Company.

In financial accounting, assets are economic resources. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset. Simply stated, assets represent ownership of value that can be converted into cash. There are two major asset classes,

1.Tangible assets:Tangible assets are the asset which can be seen, touched or physically measured. Tangible assets contain various subclasses, including current assets and fixed assets. Current assets: Those are assets continually turned over in the course of a business during normal business activity. Examples: debtors, stock, cash and work in progress. Fixed assets: Assets, which are purchases for continued and long-term use in earning profit in a business. Examples: land, buildings, machinery, etc. 2. Intangible assets:Intangible assets are defined as identifiable non-monetary assets that cannot be seen, touched or physically measured, which are created through time and/or effort and that are identifiable as a separate asset. In other words, Intangible assets are nonphysical resources and rights that have a value to the firm because they give the firm some kind of advantage in the market place. There are two primary forms of intangibles - Legal intangibles and Competitive intangibles

Example for Legal Intangibles :- Goodwill, Copyrights, Trademarks, Patents etc. Example for Competitive Intangibles:- Know-how, Collaboration activities, and Structural activities.

Asset Accounting in SAP The Asset Accounting (FI-AA) component is used for managing and supervising fixed assets with the SAP System. In Financial Accounting, it serves as a subsidiary ledger to the General Ledger, providing detailed information on transactions involving fixed assets.

AA Basic Concepts

The Basic Concepts of Asset Accounting in SAP are as follows:

1. Assets Accounting as Sub Ledger 2. Assets Class 3. Chart of Depreciation 4. Assets Master Data (Create / Change) 5. Acquisition 6. Retirements 7. Depreciation 8. Year End Closing 9. Reporting

The Asset Accounting basic concepts are briefly described below.

Basic Concepts of Asset Accounting 1. Assets Accounting as Sub Ledger Asset accounting is one of the sub ledger accounts in FI Module. These transitions are mapped through Reconciliation Account. Through this account an automatic corresponding posting will be done in General Ledger. Since these sub ledgers are maintained at Client level and General Ledger are maintained at Company Code level. Reconciliation account will connect to bridge the gap. All the postings of Asset Accounting will reflect in general ledger account through Account Determination. Account Determination mentioned in Asset Class. Asset Master Record is created using this asset class. All general ledger accounts are assigned in Account determination. 2. Assets Class:Fixed assets are classified into asset classes. The examples are Vehicles, Buildings, Furniture, Machines etc. The asset class consists of a master data section and a depreciation area section. Asset classes are created at client level. They are then assigned to at least one chart of depreciation. Functions of Asset class:A. Account Allocation:- An essential and most important function of the asset class is to establish a connection between the asset master records and the corresponding accounts in the general ledger in financial accounting. This connection is created by the account determination key in the asset class. B. Number Range Intervals:- The number range controls the assignment of the number of the asset master record, by defining the number assignment as either internal or external. C. Screen Layout:- The screen layout specifies which input fields are displayed in the asset master record and if they are Required entry or optional fields. D. Entering/Changing default values:In customizing, default values for stander user fields in the asst class can be entered. Eg:- Depreciation key, useful life, etc.

Special Asset Class for AUC:AUC require a separate asset class and corresponding G/L account, because they have to shown separately in the balance sheet.

3. Chart of Depreciation:The chart of depreciation is a list of depreciation areas arranged according to business and legal requirements. The chart of depreciation enables you to manage all rules for the valuation of assets in a particular country or economic region. In other words, Charts of depreciation are used in order to manage various legal requirements for the depreciation and valuation of assets. These charts of depreciation are usually country-specific and are defined independently of the other organizational units. Depreciation Area:- Depreciation Area represents depreciation terms that can be entered in asset class. In other words, to calculate different values in parallel for each fixed asset for different purposes. For example, for the purpose of Book Depreciation, Tax Depreciation etc. The chart of depreciation, therefore, is a directory of depreciation areas organized according to business management requirements. depreciation. For Example: Depreciation area 01 posts APC values to the general ledger in real time, normally depreciation are 01 is used to manage Book Depreciation. 4. Assets Master Data (Create / Change):Purpose:- Creation of asset master records, to which values can be posted. 1. Creating Asset Master Record. a. Creating Asset by entering Company code and Asset Class. b. Creating by using existing asset master record as a reference. 2. Creating multiple similar asset records. 3. Time dependent data: Some information in the asset master record can be managed as time-dependent data, for eg:- Cost Center, Project etc. 4. Changing Asset: Each time, while changing an asset master record, the system creates a change document. It contains the list of fields that were changed. 5. Depreciation Area: Default value comes from the asset class like, depreciation key, useful life, ordinary depreciation start date, etc. A depreciation area is always assigned to only one chart of

5. Acquisition: Purpose: Acquisition means, the purchase of assets and/or the capitalization of in-house produced goods or services. The Asset Accounting component supports various methods of handling this business process. 1. Assets under Construction : Assets under construction are acquisitions to fixed assets that are not permitted to be capitalized and depreciated immediately. 2. Direct Capitalization: Direct capitalization refers to asset acquisitions that do not have an asset under construction phase. Instead, they are capitalized and begin depreciation immediately. The options below apply to direct capitalization: a. External Asset Acquisitions:- Acquisition/Purchase of an asset from a business partner(Eg:- Vendor) b. Processing Asset Acquisitions in Purchasing (FI-AA/MM):- Unlike most other business transactions, external acquisition using a purchase order requires a sequence of steps to be performed at separate times. The sequence of the steps may be like, Creating the purchase requisition Creating the purchase order Posting the goods receipt Posting the invoice receipt c. Goods Receipt and Invoice Receipt with Reference to Asset:- Posting the goods receipt and the invoice receipt for an ordered asset with reference to the purchase order.

6. Retirements: Asset retirement is the removal of an asset or part of an asset from the asset portfolio. This removal of an asset (or part of an asset) is posted from a bookkeeping perspective as an asset retirement.

Types of retirement: 1. With or without revenue(Scrapping). 2. With or without customer(non-integrated). 3. As a full or partial retirement. 4. As a mass retirement-Retirement of several assets.

7. Depreciation: A non cash expense that reduces the value of an asset as a result of usage, wear and tear, age etc. In other words, A reduction in the value of an asset with the passage of time. always posted on a periodic basis. Direct Depreciation Types: 1. Ordinary Depreciation: Planned reduction is asset value, such as normal wear and tear, etc. 2. Special Depreciation: Purely tax based type of depreciation for wear and tear, 3. Unplanned Depreciation: Concerned with unusual circumstances, such as damage to assets, etc. Depreciation Key: Individual calculation methods, like Base line Method, Declining-balance Method, Maximum Amount Method, etc., are assigned to a Depreciation key. Calculating depreciation values: The system calculates the annual depreciation using the depreciation key and the useful life, according to the purpose of the depreciation area, other terms, such as revaluation, etc. Executing Depreciation Run(T.Code: AFAB):postings. Depreciation Posting Program(RAPOST2000):- This program directly posts the depreciation to the general ledger accounts. This is a program for periodical depreciation Depreciation is

8. Year end Closing: The year-end closing program(RAPERB2000) is to close the fiscal year for one or more company codes from an accounting perspective. Once the fiscal year is closed, it is not possible to post or change values within Asset Accounting (for example, by recalculating depreciation).

The yearend closing program checks the following 1. Whether depreciation is posted fully? 2. APC values posted periodically? 3. Assets contains any errors or incomplete? If the program does not find any errors, it updates the last fiscal year for each depreciation area. It also locks posting in asset accounting for the closed fiscal year. 9. Reporting: There are a number of standard reports available for the analysis of asset transactions. Some of them are as follows: A. AW01N-Asset Explorer: This report contains all the functions of the asset value display, as well as the option of simulating alternative depreciation terms or transactions, like depreciation areas, etc. Viewing the asset master data from here is possible. We can also move here to the asset master data to view the details. B. S_ALR_87011877: Asset History- Report on asset values at the beginning & end of the fiscal year and activity during the fiscal year. C. S_ALR_87011963: Asset Balance- Report on accumulated depreciation, acquisition value, book value of assets. D. S_ALR_87012050: Report on asset acquisition transactions. E. S_ALR_87012052: Report on asset retirement transactions.

Conclusion:These are all the basic concepts in Asset Accounting. This will gives an idea about the Asset accounting in SAP.

Referred in:- http:\\help.sap.com and www.wikipedia.com

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