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Copyright © 2003 Americas’ SAP Users’ Group
Group Depreciation in SAP - Why Bother?
Kent Bettisworth
BETTISWORTH & ASSOCIATES, INC.
Monday, May 19, 11:20am-12:30pm
Group Depreciation in SAP - Why bother?
Implementing and using group depreciation in SAP is viewed as hard-to-difficult. So why bother?
The answer is revealed during this presentation as it covers accounting and regulatory principles as well as the technical aspects of implementing and using group depreciation in the Asset Management module.
Audience: Executives and Users
Group Depreciation in SAP - Why bother?
Key Learnings
Group depreciation reduces earnings volatility
Group depreciation simplifies forecasting
Group depreciation better represents asset life In SAP, configuring the retirement transactions
properly is the most important step
Purpose of Depreciation
AICPA depreciation definition
A system of accounting
To distribute cost of capital assets, less salvage
Over the estimated useful life of the unit
(which may be a group of assets)
In a systematic and rational manner.
An allocation process
Matching specific events not required
Depreciation Framework
Financial Accounting
Freedom to choose depreciation system
Generally Accepted Accounting Principles
Physical assets are consumed
Providing a product or service
Allocate (depreciate) historical costs
Match consumption of assets or
Match revenue produced
Depreciation Framework
Regulatory Accounting
Depreciation system choices are limited
FERC and Public Utility Commissions
Group concept driven by USOA
Focus is Capital recovery
Customers pay for investment & related costs
To receive a regulated product or service
However, FASB dictates financial reporting
FAS 71, 92, 101, 121, and 143
Depreciation Systems - Terminology
Concept - defines the depreciable base
Item: Individual asset record
Group: Similar assets grouped for depreciation
Method - Straight line, Accelerated (SYD or DDB), or Deferred
Procedure - Broad group or Vintage group
Technique - Whole life or Remaining life
Depreciation Concepts Compared
Asset retirements Item: Financial Loss if retired early
Item: Financial Gain, if salvage, when retired late
Group: Financial Gain/Loss only if Extraordinary
Asset life determination Item: Imprecise; Always wrong; Conservative estimate
Group: Periodic rigorous Study of forces of retirement
Depreciation expense stops Item: Net Book Value is zero for individual asset
Group: Net Book Value is zero for asset group
Most Important
Stuff!
Volatility of Unit Depreciation Concept
3 Acquisitions for $100 each
5 year life
Straight-line, whole life calculation
$60/year depreciation
Asset retires in Year 2 and 4
Inco
me
Sta
tem
ent E
xpen
se$
120
60
0
Life in Years 0 10 5
Unit
Group
$60
$20
$80
Depreciation Systems in SAP
Concept - Unit or Group
Method - Straight line, Accelerated, or Deferred
Procedure - Broad or Vintage group
Technique - Whole life or Remaining life
Configure group assets
Create group assets
Implementation Steps
Configuration for Group Assets Specify depreciation areas
Specify asset classes
Define screen layout
Assign screen layout to depreciation area
Create and Assign asset class number range
Create retirement transactions
Assign default retirement transactions
Convert Assets
Train Organization
Step 1 - Specify depreciation areas
Affects transactions and depreciation posting
Tax use of a group asset Oil & Gas
Others?
Step 6 - Create retirement transactions
Assign Posting variant
0 is SAP default
1 & 2 do not fit group concept precisely
3 requires additional configuration
4 is best fit to group depreciation concept!
Most Important
Step!
Data Conversion Issues
Identification of a group asset Oil & Gas field; Assembly line; Computing data center
Regulated utilities use Uniform System Of Accounts
Loading Group assets first; then individual assets
Reconciliation Individual to Group: APC; cost center; asset class
Mid-Year Conversion Posted depreciation on group asset only
Post Group Assets
Retirement transactions
Post at individual asset
System copies to group asset
Use ABSO (Miscellaneous) for Extraordinary
Default transaction
Post Group Assets
Depreciation posting
Calculates and posts at group asset level
Posts to group asset cost center
Report Group Assets
Accumulated depreciation is at group asset
For individual asset NBV, use non-group book
Summary
Why use Group Depreciation?
Reduces earnings volatility
Simplifies forecasting
Better represents asset life Configure the retirement transactions
Questions
Download this presentation at:
www.bettisworthassociates.com