To illustrate SAP S/4HANA’s Depreciation to the Day feature

How will you benefit from reading this blog post?

You can comprehend from this blog post

• when SAP S/4HANA’s “Depreciation to the day” functionality is in use, depreciation is computed.
• For this computation, there are specific differences between leap years and non-leap years that must be taken into account.
• This blog post has an explanation of 8 different circumstances.

Important Points

When “Depreciation to the Day” is active, period control settings are not relevant.
Only a depreciation key that determines a percentage from usable life or from remaining life makes use of this functionality.
If necessary, the depreciation to the day approach can be used in cross-sector industries (in any nation or industry) where daily depreciation calculation is necessary.
Depreciation to the day, however, is a feature that was made available for France and Thailand’s national requirements.
Use a switchover method in phase 2 for prompt depreciation if the Net Book Value does not decrease to zero at the end of the useful life, as indicated below. Calculating depreciation in SAP S/4HANA:

The following variables form the basis for the depreciation computation.

Depreciation is calculated as Base Value x Period Factor x Percentage.

Days to be depreciated in the Year/Total Days in that Year is the Period Factor.

% = Days in the Year / Remaining Useful Life

The blog post that follows covers a variety of scenarios in detail, including additions to assets and acquisitions with varying useful lives. No of the type of transaction that takes place within the asset life cycle, the calculating methodology remains the same (Acquisitions, additions, transfers, retirements etc)

the Depreciation key’s configuration Calculating depreciation in SAP S/4HANA:

Situation 1:

Useful life percentage as the base method.

Activated Depreciation to the Day

2020 is the start date for depreciation. Regarding 2020 Period Factor is equal to 366/366.

Amount = 365/1825

= 0.2

Note:

No matter if 2020 or 2024 are leap years, the method always determines the useful life as the number of years multiplied by 365. In this instance, 5*365 equals 1825.
If there is more than one year left in the Leap Year, it will be treated as a regular year. Thus, when calculating a percentage, 365/1825 and not 366/1825 should be used.
for the 2020s Period Factor is equal to 365/365.

Proportion = 365/ (1825-365)

= 365/ 1460

= 0.25

Even though 2020 is a leap year, I just deducted 365 from 1825 in order to determine the usable life that is still left. This is because when calculating the overall useful life, I only used 365 days, and SAP S/4HANA normalises the leap year to 365 days if the remaining life is longer than one year.

for the 2020s Period Factor is equal to 365/365.

Proportion = 365/ (1460-365)

= 365/1095

= 0.333

2020 to 2023 Period Factor is equal to 365/365.

Proportion = 365/ (1095-365)

= 365/730

= 0.5

For the year 2024 Period Factor is equal to 366/366.

366/365 is the percentage.

= 1.002740

Depreciation is calculated as Base * Period Factor * Percentage.

= 2400000 * 1 * 1.002740

= 2406576

Note:

The calculated amount of depreciation exceeds the amount still to be depreciated. Therefore, the “Amount Reduced” flag has been triggered, and the depreciation amount has been changed to 2400000.
Because there won’t be much time left in 2024, the calculation of the percentage used 366/365 rather than 365/365.
Situation 2:

Useful life percentage as the base method.

Activated Depreciation to the Day

Start of depreciation is February 1, 2020. For Year 2020 Period Factor is 0.99727 (365/366).

Amount = 365/1825

= 0.2

Here, the same caveat as in Scenario 1 applies.

for the 2020s Period Factor is equal to 365/365.

Proportion = 365/ (1825-365)

= 365/1460

= 0.25

for the 2020s Period Factor is equal to 365/365.

Proportion = 365/ (1460-365)

= 365/1095

= 0.33

2020 to 2023 Period Factor is equal to 365/365.

Proportion = 365/ (1095-365)

= 365/730

= 0.5

For the year 2024 Period Factor is equal to 366/366.

Amount = 366/365.

= 1.002740

Depreciation is calculated as Base * Period Factor * Percentage.

= 2401639 * 1 * 1.002740

= 2408219

Note:

The calculated amount of depreciation exceeds the amount still to be depreciated. Therefore, the “Amount Reduced” signal has been triggered, and the depreciation amount has been changed to 2401639.
Because there won’t be much time left in 2024, the calculation of the percentage used 366/365 rather than 365/365.
Situation 3:

Useful life percentage as the base method.

Activated Depreciation to the Day

Date of Depreciation Inception: 1/2/2020 For Year 2020 Period Factor is 335/366, or 0.91530.

Amount = 365/1825

= 0.2

for the 2020s Period Factor is 365/365 and equals 0.91530.

Proportion = 365/ (1825 – 335)

= 365/1490

= 0.244966

The calculation is the same for 2022 through 2024.

pertaining to 2025 Period Factor is 0.08493 (31/365).

365/30 Equals percentage

= 12.166667

Because SAP S/4HANA bases its computation on the total days depreciated in the first year of acquisition, I’ve chosen to use 30 days as the remaining usable life in this case. In this instance, 335 days were already depreciated in 2020, hence for the purpose of calculating the percentage in 2025, 365-335 = 30 days were taken into account. However, if you pay attention, the days are still counted as 31 in the calculation of the period factor.

Situation 4:

Usable Life: One Year

Useful life percentage as the base method.

Activated Depreciation to the Day

2020 is the start date for depreciation Regarding 2020 Period Factor is equal to 366/366.

Ratio = 366/366 = 1

In contrast to previous instances when leap years are disregarded, the computation will take into account the leap year if the useful life is one year. Due to 2020 being a leap year, the days used in this percentage computation will be 366 days.

Situation 5:

Usable Life: One Year

Useful life percentage as the base method.

Activated Depreciation to the Day

Start of depreciation is February 1, 2020. For Year 2020 Period Factor is 0.99727 (365/366).

Ratio = 366/366 = 1

Remaining funds will be depreciated beginning January 1st, 2021.

for the 2020s Note: For scenarios 4 and 5, I’ve put in place a special SAP Note that the product team made for our client. The scenario 4 and 5 in SAP S/4HANA’s standard depreciation engine will have a residual amount at the end of the useful life, meaning that the NBV won’t drop to zero at that point.

Situation 6:

Usable Life: One Year

Useful life percentage as the base method.

Activated Depreciation to the Day

Start of depreciation is February 1, 2023.

2020 to 2023 Period Factor is 0.99727 (364/365).

Number = 365/365 = 1

For the year 2024 Period Factor is 1/366 and equals 0.9972.

Ratio = 366/2 = 183

However, at the time we reach the year 2024, the usable life is only 366 days, hence 2 days were taken into account while calculating the percentage because 364 days had already passed. Thus, 366-364 = 2 days is used to compute the remaining useful life.

Situation 7:

Usable Life: One Year

Useful life percentage as the base method.

Activated Depreciation to the Day

Beginning of depreciation: January 3, 2023

2020 to 2023 Period Factor is 306/365, which is 0.83836.

Number = 365/365 = 1

For the year 2024 Period Factor is 60/366, or 0.16393.

6.1 percent is equal to 366/60.

Because 306 days have already passed, 60 days have been used in this calculation of %; however, the usable life will be 366 days by the year 2024. Therefore, 366 – 306 = 60 days is used to compute the remaining useful life.

The posting of subsequent acquisitions is covered by this scenario.

Useful life percentage as the base method.

Activated Depreciation to the Day

2020 is the start date for depreciation. For Year 2020 First Acquisition: 1/1/2020 for a price of \$12,000,000.

Second Acquisition – 1/4/2020 for \$2,000,000.

Recall that the 12,000,000 acquisition value on January 1, 2020, will be depreciated for 91 days, or until the second acquisition on April 4, 2020.

On First Acquire

Value Base: 12,000,000

Period Factor is 91/366 and equals 0.24863.

Percentage = 365/3650 = 0.1 (As previously discussed in earlier cases, 3650 is calculated by multiplying 10 by 365).

On Second Acquire

Base Value: 12,000,000,298,361, and 2000,000,000

= 31701639

Period Factor is equal to (366-91)/366)

= 275/366

= 0.75137

Proportion = 365/ (3650-91)

= 365/3559

= 0.102556

Conclusion:

This blog post explored a variety of scenarios and included a thorough computation of the results of depreciation.
In unusual circumstances where base value is affected, such as when scrap value is involved, further consideration is necessary (You can choose to include or exclude the scrap value percentage in the base in the depreciation key).
The unanticipated depreciation posting in the current year won’t affect Net Book Value, the basic value used to calculate depreciation. Only the following year will see the effects of it.