Case Study/Problem Proposition
Capital project spending (Capex) results in the construction of assets belonging to various asset classes. The Capex amount may not be permitted for 100% capitalization under all accounting principles, depending on the asset class. By accounting principle, different cost categories (labor, material, etc.) have distinct capitalization rules (and by country).
With an example, this document will demonstrate how to implement such a business requirement in SAP S4 HANA digital core. The illustration demonstrates that “personal expense” is fully capitalized in US GAAP but only partially under IFRS.
Pre-requisite/Assumption:
The following components are used: Project System (PS), Investment Management (IM), and Asset Accounting (FI-AA).
IFRS is the secondary ledger, while US GAAP is the primary ledger. Leading ledger (also known as the leading accounting principle) is indicated by the book depreciation area.
The blog discusses configuration tasks for IM and PS components, if any.
The blog assumes that Asset class, Depreciation area, etc. are configured and ready for usage and does not address configuration actions in the AA component.
Master Data and Configuration:
There are some fundamental configurations in place, including “project profile,” “settlement profile,” “investment profile,” and “asset class” in FI-AA in PS.
Operation-unrelated cost An account for G/L is made.
The following configurations have also been finished:
Project as Investment Measure IMG- Investment Management
Only the depreciation area (ledger/accounting principle) that calls for partial capitalization of posted cost is appropriate to the arrangement below.
Versions Define Capitalization
For convenience of reference, the version key (’32’) can be the same as the intended depreciation area (’32’).
Assign Capitalization Version to Depreciation Area
Note: Depreciation area 33 in this case automatically derives assignment.
Continually use capital letters
Note: Another name for “Results Analysis (RA) Key” is “capitalization key.”
Describe capitalization rates (OKGK)
Define the percentage for the combination of the company code, the capitalization key, the capitalization version, and the general ledger account (aka cost element). Keep other attributes global by setting them to “+++..”
Although multiple G/L accounts may be used, the example only utilizes one G/L account to show how scalable it is.
Capitalization Key for Asset Class Assignation
- Determine Accounts for Non-operating Expense
Note:
The area for book depreciation has no settings.
Transactional Data
The creation of a capital project with a WBS element.
Release of the project. For the WBS Element, Asset Under Construction (AuC) is automatically established.
Actual costs are reported using a (valued) goods receipt for a PO, a journal entry, a timesheet, or a manual cost allocation.
The project that settles costs with AuC executes period end settlement.
Report on project real costs by line item is completed. Drill down to the accounting records for the posted actual cost line item from the report. Alternately, the result list of the settlement transaction (CJ88) can be used to obtain the accounting documents (as shown)
To see APC posting information for an asset in the leading ledger, open the Asset transaction from the list of documents.
To review the financial accounting posting for ledger ‘0L, open accounting document for leading ledger from the list.
To review the financial accounting posting in the “2L” ledger, open an accounting document for the secondary ledger from the list.
Tip: In S4, ledgers are becoming “synonymous” with accounting principles (GAAP, IFRS, etc.).
Only 80% of the cost of “people time” is capitalized (80% of 6,500 = 5,200 USD). 50304000 is a reference cost element.
100% of other “labor/material” costs are capitalized (9,900). Citation CE 61103000
15,100 USD (5,200 + 9,900) are total.
The non-operating expenditure account has been posted with the non-capitalized cost (20% of 6,500 equals 1,300).
Results for the AuC asset can also be viewed in Asset Explorer (AW01N). As can be expected, there are differences in the acquisition values between the depreciation sectors.
Please take note that the source WBS Element and GL account serve as the source for attributes like (requesting) cost center and profit center in the resulting Auc Asset. They are accessible using the Asset Explorer.
Conclusion:
From the straightforward example above, it is clear that S4 HANA digital core may easily fulfil the criteria to “capitalize capex spend differentially by accounting principle,” as was the case with ECC (with “parallel ledger”).
When the asset class of the final fixed asset is configured, a similar result can be reached.