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 2 - Specify asset classes

All asset classes can be used

Recommend unique asset class

Step 3 - Define screen layout

Create unique screen layout

Set group asset as required field

Step 4 - Assign screen layout

Assign to normal asset classes

Forces link to group asset class

Step 5 - Create number range

Individual Asset Class number range

Group Asset Class number range

Step 5 - Assign number range

Group Asset Class number range

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!

Step 7 - Assign default transactions

Transactions

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

Create Group Assets

Enter group asset when normal asset created

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

Copyright © 2003 Americas’ SAP Users’ Group

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Session Code: 1402