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 Settlement of an Asset under Construction 

Purpose

An asset that you produce yourself has two stages in its life that are relevant for accounting from the point of view of your company:

  • Under construction phase
  • Useful life

Generally, an asset has to be shown in different balance sheet items, depending on the phase that it is in. Therefore, it is necessary to manage the asset as a separate object or asset master record during the construction phase. The transition between these two phases is called "capitalization of the asset under construction" in the following.

Process Flow

You can manage the asset under construction in the system in two different ways, depending on the types of functions that you need. The asset under construction can be either a normal asset record, or a master record with line item management. As a result, the transfer from the asset under construction to completed fixed assets can be handled in one of two ways:

  • Summary transfer from a normal asset master record to the receiver assets (transaction type 348/349)
  • Line item settlement of an asset under construction that has line item management

The R/3 Investment Management (IM) component is recommended for handling large-scale capital investments. Using the IM component, you can manage a capital investment in parallel: for financial accounting purposes as an asset under construction, and for controlling purposes as an internal order or project. For more information, see the documentation for

the Investment Management component.

Assets under Construction Without Line Item Management

The procedure corresponds to the procedure for the transfer between two assets within the same company code (see

Posting the Splitting or Moving of an Asset). Before carrying out a full transfer of an asset under construction, you have to reverse any down payments that were posted in the current fiscal year. Down payments are ignored for a partial transfer.

Special transaction types for the transfer of assets under construction allow for transfers to be displayed in the asset history sheet as acquisitions to fixed assets.

Intracompany Transfer of Asset under Construction

Assets under Construction with Line Item Management

In the FI-AA component, you can accumulate costs under purely technical aspects in an asset under construction. You do not need to consider the later creation of fixed assets at this point. During the construction phase, you can accumulate all acquisitions for an investment in a single asset. These acquisitions include

  • External activity (acquisition from vendor)
  • Internal activity (internal order)
  • Stock material (withdrawal from warehouse)

in a single asset. When using this 'collective management' of assets under construction, it is possible to manage the individual acquisitions as open items over the course of several fiscal years. At completion, the line items must be cleared and then distributed to the various receivers. The system activates open item management when an asset under construction is created, if you set the corresponding indicator in the asset class. In addition, you have to assign a settlement profile to the company codes involved, in Customizing for Asset Accounting, in order for the line item settlement to work (see Define Settlement Profile in the Implementation Guide). The main function of the settlement profile is to specify the allowed receivers (such as, assets or cost centers).

Graphic: Line Item Settlement

Distribution Rules

Line item settlement is carried out by using distribution rules. Distribution rules are asset-specific. Several distribution rules form a distribution rule group. You can assign these groups to one or more line items of an asset. Distribution rules consist of a distribution key and a receiver. The distribution key can be equivalence numbers or percentage rates. In this way, you can distribute any number of combinations of line items to any number of combinations of receivers.

Distribution rule group with percentage distribution

Distribution key Receiver (Asset)

10% 10531-1000

20% 10531-2000

40% 10533-0000

30% 10533-1000

Distribution rule group with equivalence numbers

1 : 2 : 4 : 3

Receivers

You must settle those parts of the asset under construction that require capitalization to capitalized assets. Those parts that do not require capitalization (expense) can be settled as a adjustment postings to cost centers. You can specify a cost element in the account determination in Asset Accounting for this settlement to cost centers. However, you should be aware that you can only settle acquisitions from the current fiscal year to CO receivers. This restriction applies since acquisitions from previous fiscal years should not have an effect on expenses of later fiscal years.

In addition, it is possible to settle to general ledger accounts. However, these G/L accounts cannot be defined with additional account assignment to a CO object. Therefore, you should first settle to clearing accounts, if necessary, and then transfer the values to the corresponding accounts in Financial Accounting.

Investment Support

Just as it does for completed assets, the system calculates depreciation and interest for the asset under construction. This calculation is based on the depreciation terms specified in the asset master record or in the asset class. It is also possible to manage investment support on the asset under construction. However, it is not possible to transfer investment support that was posted to the asset under construction in the year of capitalization. The investment support cannot be transferred to a completed asset, because you cannot tell if the investment support applies to acquisitions in the current fiscal year or earlier fiscal years. Therefore, you have to reverse the investment support manually before the settlement. After the settlement, you post it to the completed asset.

Initiating the Settlement

You can set up the settlement rules at a given point in time, and then carry out the corresponding update of the line items at a later point in time, since a separate transaction exists for the actual settlement. This transaction triggers the settlement posting for the selected assets under construction, and creates the necessary posting documents.

During this process, the system automatically separates the transfer of asset acquisitions from prior fiscal years from acquisitions that took place in the year of capitalization. When the prior-year acquisitions are transferred, (special) depreciation and investment support measures are also transferred proportionally. The system automatically generates carryforward postings for partial capitalization.

There is a standard report that enables you to trace the origin of the items in the capitalized asset back to the original asset under construction.

Procedures

Posting Capitalization of AUC (Intracompany Transfer)

Posting Capitalization of AUC with Line Item Settlement