Depreciation Methods and its Application in SAP - Illustration Guide

By Md. Moizuddin Khan On October 10, 2008 · Filed Under SAP 

Methods: There are several methods of providing depreciation. The most common are

Straight-Line method
Declining Balance method: Written Down Value method, Double Decling Balance method

Straight-Line method: It is the most common method of determine amounts to be charged to depreciation.

Cost + Erection charges - Scrap Value = Annual Depreciation
Assets Life number of years

Rate of Depreciaton= Annual Depreciation x 100
Cost of Asset + Erection Charges - Scrap Value

If a Vehicle purchased at $5,000, estimated life of vehicle is 5 years and scrap value $ 300

5000 - 300 = 4,700 when devided by vehicles estimated life i.e., 5 years then the amount to be charged to depreciation each years is $940.

Written Down Value method:

In this method depreciation is charged at a fixed rate on the reducing balance of the asset each year. As a result each year the amount of depreciation charged keeps on reducing because
the depreciation is calculated on the written value of asset each year.

Double Declining method:

Under this method depreciation is charged in the same way as it is done under written down value method. The difference between the two is the rate. Under this method the rate of depreciation charged is doubled the straight-line method rate.

SAP FI/CO module with its simple features makes Accountants life easier in Asset Accounting and applying Depreciation.

SAP FI/CO module with its simple features makes Accountants life easier in Asset Accounting and applying Depreciation. Use of application steps added with the examples is explained here below with the purpose for learners to exercise practice

Our assumed walking through Example Company here is SPIC.

Asset Accounting

Subsidiary Ledger

Terms – Chart of Depreciation – Copy Germany Char of Depreciation (client 800)
Copy Germany & India (client 000)

Depreciation Areas → Book Depreciation
Income from Depreciation
Costing Depreciation
Group Depreciation

In Books only Book Depreciation will be posted.

Depreciation methods – Straight line method (SLM)
Written down value method (WDV)

Depreciation Keys Rate + Method
i.e. 5% SLM
5% WDV

Posting Keys 70 Asset Debit
75 Asset Credit

Transaction 100 External Asset acquisition
110 In house production
210 Retirement is revenue (consideration)

Data flow in Asset Accounting:

Account Determination Asset
Class Asset
Master Sub-Asset
Master

Purchase -

Sale -
Land – Free Hold
Lease Hold

Profit on Asset -
Building -
Factory
Administrative

Loss on Asset -
Plant & Machinery -
Dept. A- Machine 1
Machine 2
Machine 3

Dept. B

Dept. C
Additions to a specific Machinery is created as sub-Asset

(SL) Subsidiary
Motor a/c Dr
P&M a/c (G/L)
To Bank A/c (G/L)

Loss due to Scraping -
Furniture & Fixtures
Furniture & Fixture
Office Equipment

Depreciation -
Vehicles
Heavy Vehicles
Other

Accumulated Depreciation -
Capital work in progress

General – Expansion 1
Expansion 2

Determines G/L account to be posted (Automatically)
Main asset will always have sub number Zero

Asset accounting here has 4 basic rules:

Sub Asset Master Items is created with main Asset Master.
Main Asset Master is created with reference to Asset Class.
Account determination is specified in Asset Class.
G/L accounts are assigned to Account Determination based on nature of transactions.

Copy Reference Chart of Depreciation/Depreciation Areas:
TC: ECO8

SPRO→ Financial Accounting → Asset Accounting → Organizational Structures → Copy reference Chart of Depreciation/Depreciation Areas

Double click on copy Reference Chart of Depreciation

From Menu: Organizational Object→ Copy organizational object

From Chart of Depreciation ODE → Maximum Value (Germany)
To Chart of Depreciation SPIC * → any text / number (*assumed)

(Ignore message) Enter ◄╝

Select button.

Create

Save in request Enter ◄╝

Message “Chart of Depreciation ODE copy to SPIC” is displayed

Select “◄═” back arrow

Double click on Specify Description of Chart of Depreciation

Select button.

Enter Chart of Depreciation SPIC ◄╝

Save/Save in request

Select “◄═” back arrow

Double Click Copy/Delete Depreciation Areas

Chart of Depreciation SPIC ◄╝

Select all Depreciation Areas except

01 Book Depreciation
02 SPC Tax Depreciation
30 Group DEM

From Menu Select Copy/Delete

Select Save button

Ignore all walking messages till the message “Data was Saved” message is prompted.

Assign Chart of Depreciation to Company Code

Same path OAOB

Select button.

Company Code SPIC ◄╝

Co. Code Chart of Depreciation Code
▼ ▼
SPIC SPIC

Control+S / Save in request

Specify Account Determination

SPRO → Financial Accounting → Asset Accounting → Organizational Structures → Asset Class → Specify Account determination

Select

Account Name of Account
Determination Determination

SP10000 Land
SP11000 Buildings
SP20000 Plant & Machinery
SP30000 Furniture & Fixtures
SP31000 Vehicles
SP40000 Capital Work in Progress

Control+S / save in request

Create Screen Layout Rules ( Same Path)

SPRO → Financial Accounting → Asset Accounting → Organizational Structures → Asset Class → Specify Account determination

Select SLR Name of Screen Layout
Land
Buildings
General Machines
Fixtures & Fittings
Vehicles
Asset under Construction

Select Copy as, Change SCN Name of Screen Layout

SP1 Land
SP2 Buildings
SP3 Plant & Machinery
SP4 Fixtures & Fittings
SP5 Vehicles
SP6 Asset under Construction
(Capital work in progress)

Control+S / save in request

Define Number Range Interval: (AS08)

SPRO → Financial Accounting → Asset Accounting → Organizational Structures → Asset Class → Specify Account determination

Double click on Define Number Range Interval

Enter Co. Code that is we have here SPIC

Select change button

No. From To

01 000001 100000 Enter ◄╝

Select change once again

02 100001 200000 Enter ◄╝

Select change button again

03 200001 300000 Enter ◄╝

Select change button again

04 300001 400000 Enter ◄╝

Select change button

05 400001 500000 Enter ◄╝

Select change button again

06 500001 600000 Control Save

Define Asset Class: OAOA

Same path as above

SPRO → Financial Accounting → Asset Accounting → Organizational Structures → Asset Class → Specify Account determination

Select Button

Asset Class SPIC1000 Free Hold Land
Short text Free Hold Land

Account Determination SP10000

Screen layout rule SP1

Number range 01

Inventory Data

Select Include Asset → Fixed Asset Inventory List

Select NO – AUC (Asset under construction) or Summary Management of AUC.

Ctrl+S / save in request

Select button

Asset Class SPIC1100 → Factory Buildings
Short Text Factory Buildings

Account Determination SP11000 → Buildings

Screen layout rule SP2

Number range 02

Select Include Asset

Select NO – AUC (Asset under construction) or Summary Management of AUC

Cntl+S

Select button

Asset Class SPIC 2000 Department A
Short text Department A

Account Determination SP20000

Screen Layout rule SP3

Number Range 03

Select Include Asset

Select NO – AUC (Asset under construction) or Summary Management of AUC

Ctrl+S

Select button

Asset Class SPIC3000 Furniture & Fixtures
Short text Furniture & Fixtures

Account Determination SP30000

Screen Layout Rule SP4

Number Range 04

Select Include Asset

Select NO – AUC (Asset under construction) or Summary Management of AUC

Ctrl+S

Select button

Asset Class SPIC3100 Vehicles Other
Short Text Vehicles Other

Account Determination SP31000

Screen Layout SP5

Number Range 05

Select Include Asset

Select NO – AUC (Asset under construction) or Summary Management of AUC

Ctrl+S

Select button

Asset Class SPIC4000 Capital W.I.P General (Work in Progress)
Short Text W.I.P General

Account Determination SP31000

Screen Layout SP6

Number Range 06

Select Include Asset

Select NO – AUC (Asset under construction) or Summary Management of AUC

Ctrl+S

* Asset Class (When creating Number Range)
↓
Number Range
↓
Company Code
↓
Company Code – Chart of Depreciation
↓
Depreciation Areas

Determine Depreciation Areas in Asset Class:-

SPRO – Financial Accounting – Asset Accounting – Valuation –

Determine Depreciation Areas in the Asset Class -

Select Button

Asset Class SPIC1000 Free Hold Land

Double click on folder

Layout

De-select 01 Book Depreciation 2000 → Depreciation on Asset
Sub- Number level

Select 02 2000

2000

Ctrl+S / Save in request

Select back arrow

Repeat same procedure for
SPIC 1100
SPIC 2000
SPIC 3000
SPIC 3100
SPIC 4000

15 G/L Accounts to be credited

Land
Building
Plant & Machinery
Furniture & Fixtures
Vehicles
Capital work in Progress

Accumulated Depreciation - Buildings
Accumulated Depreciation - Plant & Machinery
- Furniture & Fixtures
- Vehicles

Profit on Sale – under other income 300100 – 300199
12. Sort Key 018, Field Status Group G052
” G001
Loss on Asset Sale ] under Administration ] 400300 – 400399
Sort Key 018, Field Status Group G052
Loss due to scrapping ] Admin]
Depreciation- Depreciation – 400500 – 400599,
Sort Key 018, Field Status Group G052
———-

Create G/L Masters: FS00

G/L Account Number 200000
Company Code SPIC Select button

Allocate G/L A/C No. 200110 – Sundry Debtors

Company Code SPIC Enter ◄╝

Change Account Group to FIXED ASSETS
Short Text Land
G/L A/c Long Test Land

Select Control Data Tab

Reconciliation Account for Account Type: Asset
Sort Key: 018 Asset number

Select: Create/Bank/Interest tab

Field Status Group: G067

Ctrl+S

G/L Account No: 200005

Company Code: SPIC Select button

Enter Account Number: 200000 Enter ◄╝

Select Type/Description tab

Change Short Text to Buildings

G/L Account Long Text Buildings

Other fields remain the same

Ctrl+S

G/L A/c No: 200015
Company Code SPIC Select button

Enter G/L Account No: 200000 Enter ◄╝

Change Short Text: Furniture & Fixtures
G/L Account Long Text: Furniture & Fixtures

Ctrl+S

G/L Account No: 200020
Company Code: SPIC Select button

Enter G/L A/c No. 200000 Enter ◄╝

Change Short Text to Vehicles
G/L A/C Long Text Vehicles
Common – Other field information remains the same
Ctrl+S

G/L A/c No: 100200
Company Code: SPIC Select button

Enter G/L Account 200000 Enter ◄╝

Change Account Group to Accumulated Depreciation
Short Text Accumulated Dep. Buildings
G/L A/C Long Text Accumulated Dep. Buildings

Other field information remains the same /

Ctrl+S

G/L A/C No: 100205

Company Code: SPIC Select button

Enter G/L A/C No. 100200 Enter ◄╝

Change Short Text: Accumulated Dep. Plant & Machinery
G/L Long Text Accumulated Dep. Plant & Machinery
Other field information remains the same
Ctrl+S

G/L A/c No: 100210
Company Code: SPIC Enter button

Enter G/L A/c No: 100200 Enter ◄╝

Change Short Text Accumulated Dep. Furniture & Fixtures

G/L A/C Long Text Accumulated Dep. Furniture & Fixtures

Information in the other fields remains the same
Ctrl+S

G/L A/C No: 100215
Company Code: SPIC Enter button

Enter G/L A/c No: 100200 Enter ◄╝

Change Short Text to Accumulated Dep. Vehicles

Change G/L A/c Long Text to Accumulated Dep. Vehicles

Other field information remain the same
Ctrl+S

G/L A/C No: 300102

Company Code: SPIC Enter button

Enter G/L A/c No: 300100 Enter ◄╝

Change Short Text to Assets Sales

Change G/L A/c Long Text to Assets Sales

Select Control data tab

Sort Key 018 → Asset Number

Select Create/bank/interest tab

Field Status Group: G052 → for fixed Asset Retirement

Ctrl+S
G/L A/C No: 300103
Company Code: SPIC Enter button

Enter G/L A/c No: 300100 – Exchange Gain Enter ◄╝

Select Type/Description tab

Change Short Text to Profit on Assets Sale

Change G/L A/c Long Text to Profit on Assets Sale

Select Control/Data tab

Sort Key 018 → Asset Number

Other field information remains the same
Ctrl+S

G/L A/C No: 300103
Company Code: SPIC Enter button

Enter G/L A/c No: 300100 – Exchange Gain Enter ◄╝

Select Type/Description tab

Change Short Text to Profit on Assets Sale

Change G/L A/c Long Text to Profit on Assets Sale

Select Control/Data tab

Sort Key 018 → Asset Number

Other field information remains the same

Ctrl+S

G/L A/C No: 400302
Company Code: SPIC Enter button

Enter G/L A/c No: 300103 – Profit on Asset Sale Enter ◄╝

Select Type/Description tab
Account Group Administration

Change Short Text to Loss on Assets Sale

Change G/L A/c Long Text to Loss on Assets Sale

Select Control/Data tab

Other field information remains the same

Ctrl+S

G/L A/C No: 400308
Company Code: SPIC Enter button

Enter G/L A/c No: 400302 – Loss on Asset Sale Enter ◄╝

Change Short Text to Loss due to scrapping

Change G/L A/c Long Text to Loss due to scrapping

Other field information remains the same

Ctrl+S

G/L A/C No: 400500
Company Code: SPIC Enter button

Enter G/L A/c No: 400302 – Loss on Asset Sale Enter ◄╝

Account Group Depreciation

Change Short Text to Depreciation

Change G/L A/c Long Text to Depreciation

Other field information remains the same

Ctrl+S

Assignment of Accounts for Automatic Posting

SPRO – Financial Accounting – Asset Accounting – integration with G/L – Assign G/L accounts – AO09

Chart of Depreciation SPIC Enter ◄╝

Chart of Accounts SPIC

Double click on Account Determination folder

Select SP10000 Land

Double click on Balance Sheet Accounts folder

Acquisition Column: Acquisition & Production Cost 200000
Loss made on Asset Retirement W/O Rev. 400303
Clearing Account Revenue from Asset Sale 300102
Gain from Asset Sale 300103
Loss on Asset Sale 400302 ◄╝

Ctrl+S
Ignore message and Enter ◄╝ Save in request

Double click on Account Determination folder

Select SP11000 Buildings

Double click on Balance Sheet Accounts folder

Acquisition Column: Acquisition & Production Cost 200005
Loss made on Asset Retirement W/O Rev. 400303
Clearing Account Revenue from Asset Sale 300102
Gain from Asset Sale 300103
Loss on Asset Sale 400302

Ctrl+S
Ignore message and Enter ◄╝

Double Click on Depreciation folder

Acc. Dep. A/c for Ordinary Depreciation 100200
Expenses A/c for Ordinary Depreciation 400500

Ctrl+S
Ignore message and Enter ◄╝

Double Account Determination folder

Select SP20000 Plant & Machinery

Double click on Balance Sheet folder

Acquisition and Production Cost 200010

Loss on Asset Retirement w/o rev 400303
Clearing Acct. revenue from Asset Sale 300102
Gain from Asst Sale 300103
Loss from Asset Sale 400302

Ctrl+S
Ignore message and Enter ◄╝

Double click on Depreciation folder

Acc. Dep. A/c for Ordinary Depreciation 100205
Expenses A/c for Ordinary Depreciation 400500
Ctrl+S
Ignore message and Enter ◄╝

Double Account Determination folder

Select SP30000 Furniture & Fixtures

Double click on Balance Sheet folder

Acquisition and Production Cost 200015

Loss made on Asset Retirement
w/o rev. 400303
Clearing Acct. revenue from Asset Sale 300102
Gain from Asst Sale 300103
Loss from Asset Sale 400302

Ctrl+S
Ignore message and Enter ◄╝

Double Click on Depreciation folder

Accrue dep. A/c for Ordinary Depreciation 100210
Expenses A/c for Ordinary Depreciation 400500

Ctrl+S
Ignore message and Enter ◄╝

Double Click on Depreciation folder

Select SP31000 Vehicles

Double click on Balance Sheet folder

Acquisition and Production Cost 200020
Loss on Asset Retirement w/o rev 400303
Clearing Acct. revenue from Asset Sale 300102
Gain from Asst Sale 300103
Loss from Asset Sale 400302

Ctrl+S
Ignore message and Enter ◄╝

Double Click on Depreciation folder

Accrue dep. A/c for Ordinary Depreciation 100215
Expenses A/c for Ordinary Depreciation 400500

Ctrl+S
Ignore message and Enter ◄╝

Select SP40000 Capital WIP
Work in progress

Double click on Balance Sheet folder

Acquisition and Production Cost 200025
Loss on Asset Retirement - W/o rev 400303
Clearing Acct. revenue from Asset Sale 300102
Gain from Asst Sale 300103
Loss from Asset Sale 400302

Ctrl+S
Ignore message and Enter ◄╝

SPECIFY DOCUMENT TYPE FOR POSTING DEPRECIATION:

SPRO – Financial Accounting – Asset Accounting – Integration with G/L – Post Depreciation to General Ledger – Specify Doc. Type for posting of Depreciation. OBA7

Double Click ‘Define document type’
Select document type AF Depreciation posting
Select Details button (F2)
Number Range 04

Select Number Range Information button

Enter Co. Code SPIC
Select Change Intervals button
Select Interval button

No. Year From No To No Current No Ext ← | What should be the documents No we need to
| enter

04 2006 800001 900000 0

Save

Specify Intervals and Posting Rules

SPRO path same - OAYR

Select Position button

Co. Code SPIC ◄╝

Select Co. Code SPIC

Double Click Posting Rules folder

Select Dep. Area
01 Book Depreciation
Select Details button

Select monthly posting WDT
12 months

Ctrl+S

Specify Rounding of Net Book Value and/or Depreciation

SPRO – Financial Accounting – Asset Accounting – Valuation –
Amount Specifications (Co. Code/Depreciation Area) – specify
rounding of net book value and/or depreciation. OAYO

Select Position button

Co. Code SPIC ◄╝

Select Co. Code SPIC

Double Click on Recording Specifications folder

Select Area – 01Book Depreciation

Select Detail button

Automatically Calculated Depreciation

Select “Round to nearest whole” (i.e. .50 as one Rupee G/L takes next rupee)

Control + S Save in request

Define Screen layout for Asset Master Data

SPRO – Financial Accounting – Asset Accounting - Master data – Screen Layout – Define Screen layout for Asset Master data

Double Click on

Define Screen layout for Asset Master Data

Select Position (Shift+F7)

Screen Layout SP1 ◄╝ Enter

Select Layout SP1

Double click folders

Log Field Group
Click 2 position information

Double click on Field Group Rules folder

Field Group Name
Capitalization data ● required Minimum No. Sub. No. Copy

Save

Select ◄ Back arrow

Log Field Group
Click 3 Time dependent

Double click on Field Group Rules folder

Field Group Name
Business Area ● required Minimum No. Sub. No. Copy

Save

Select ◄ Back arrow

Define Screen Layout for Asset Depreciation Areas (AO21)

Same path

Select Screen Layout 2000 Dep. On Asset Sub No Level

Double click on Field Group Rules folder

Field Group Name
Depreciation Keys Req. ● Mn No Sub No. Copy

Ctrl+S Save

Depreciation Keys

Creation (Rates Method)

Step 1

1. Define Base Method
2. Define Declining Balance Method
3. Define Multi Level Method assign
4. Maintain Period Control Method

5. Maintain Depreciation Key

Asset Master

1. Define Base Methods:

SPRO-Financial Accounting-Depreciation-
Valuation Methods-Depreciation Key-
Calculation Methods-Define Base Methods

0014 Ordinary: Explicit Percentage (At the end of Life)

2. Define Declining Balance Methods:
Same Path

Chart of Depreciation SPIC

001

3. Define Multi Level Methods:- AFAMS
Same path

Select New Entries button

Multi Level Method Text 5% SLM

Validity Start from Ordinary Depreciation Start Date

Ctrl+S Save in your request

Double click Levels folder Select New Entries button

Acquisition Area: 9999 Years: 999 Periods: 12 Base Value(Acquisition Value): 01
Percentage: 5%
Max No. of years
5% SLM = 20 years
10% SLM = 100 years
Ctrl+S

Rem Life useful like of Asset (Out of India)
Useful Life of Asset: 20 years

Each year depreciation= 100,000/20=5000

2001 → Company started
SAP → Installed

20 Years Machine life is 15 years

Select ◄ Back arrow twice

Select button

Multi method 5% WDV
Validity starts from Ordinary Depreciation start date.
Ctrl+S

Double click on Levels folder

Select button

Acquisition year: 9999 Year: 999 Period: 12 Base Value: 24 net book value
Percent: 5%
Ctrl+S

4. Maintain Period Control Methods: (AFAMP)

Path same

Select button

Period (Text field): 006 Description: 01/06/06/06 Acquisition year (date): 01
Add: 06 (at the start of year) Ref: 06 Transfer year: 06
Ctrl+S Save in your request

Maintain Depreciation Key: (AFAMA)
Path same

Select button

Depreciation Key SP1 – text field 5% SLM

Period control accounting to fiscal year
Depreciation to the date (Sale on Asset up to that period)

Save – ignore message | Enter ◄╝ Save in request

Double click on folder

Select button

Depreciation Type: Ordinary Depreciation

Phase : From the start of Depreciation
Base Method : 0014
Declining Balance Method : 001
Period Control : 006
Multi Level Method : S1
Class Straight Line Depreciation
Ctrl+S

Select ◄ Back arrow four times

Select Dep. S1 Select Activate button

Select button

Depreciation Key: SP2 5% WDV

Period Control according to Fiscal Year

Depreciation to the day
Ctrl+S
Ignore messages Enter ◄╝

Double click on

Select button

Depreciation Type: Ordinary Depreciation
Phase From the start of Depreciation
Base Method 0014
Declining Bal. Method 001
Period Control 006
Multi Level Method S2
Class Declining Balance Depreciation – WDV
Ctrl+S

Select ◄ Back arrow four times

Select SP2 Select Activate Button

Save

Select first page ↕ (Control+ Page up) button

Select Depreciation: 0000 Select Activate button

Creation of Asset Master

Accounting – Financial Accounting – Fixed Assets – Asset - Create – Sub-number – Asset

Enter Asset Class: SP2000 Company Code: SPIC Enter ◄╝

Description Machine No.1 Capitalized on 24.04.2006

Select Time dependent tab Enter Business Area SPM

Select Depreciation tab

Dep. Key: SP1 Useful Life: 15 Years Period: 6 months
Ordinary Dep. Start date: 20.04.2006

Creation of Sub-Asset Master: AS11

Accounting – Financial Accounting – Fixed Assets – Assets – Create Sub-number – Asset:

Enter Asset No. 200001 Company Code: SPIC Enter ◄╝

Description MOTOR

Capitalization No. 17.08.06

Select Time Dependent tab Business Area: SPH

Select Depreciation Area tab

Depreciation Key: SP2 (Only for testing) Ordinary Dep. Start: 17.08.06

Last 5 posts by Md. Moizuddin Khan

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