Revaluation of Assets at Regular Intervals (SAP Library

Revaluation of Assets at Regular Intervals

Purpose

This process illustrates how you can use the SAP System to automatically revaluate your assets. For the purposes of this example, we assume:

That you revaluate assets at the end of each month, which is standard practice in the majority of countries
That assets are not to be revaluated in the month that you acquire them in, but every month after
That your fiscal year is the same as the calendar year

Process Flow

In January, you post an asset acquisition of some drilling equipment for UNI 12,000.

The system debits the acquisition and production costs (APC) to the asset subledger account for drilling equipment and credits the vendor's account (see graphic below); the transaction is automatically recorded on the asset reconciliation account in the general ledger.

The system automatically calculates the planned depreciation amounts for the entire year in the asset subledger, but without yet posting them to the general ledger. The equipment has a useful life of 10 years and is to be depreciated using the straight-line method without any scrap value. That means that one month's depreciation is UNI 100.

At the end of January, you execute a depreciation posting run.

The program posts the depreciation amount – UNI 100 – to the general ledger as follows:

Note that there is no revaluation amount for this month, as in this example, assets are not to be revaluated in the same month as they are acquired.

At February month-end, you need to revaluate the equipment. To this end, you run the Asset Revaluation (Inflation) program.

The program:

Revaluates the asset acquisition

The inflation rate is currently running at 10% a month, which means that the equipment, which was originally worth UNI 12,000, is now worth UNI 13,200, a revaluation amount of UNI 1,200.

Creates an asset document to post the revaluation amount in a revaluation area in the asset subledger

Note that the program creates these documents in a batch input session, which you then have to process in order for the document to be posted to the subledger (see step 4).

Calculates the planned annual depreciation on the revaluation amount

Now that the equipment's value has increased, the original monthly depreciation of UNI 100 will not be enough to fully write off the asset over 10 years. For this reason, the monthly depreciation amount has to be extended to cover the revaluation amount (UNI 1,200).

The system calculates the depreciation on the revaluation amount by using the same rules as it used to calculate the unadjusted depreciation, so spread over the asset's useful life of 10 years, the UNI 1,200 has to be depreciated at UNI 120 per annum, or UNI 10 per month.

As soon as the program has created the batch input session, you process it.

The system posts the asset revaluation documents, which serve to update the revaluation amounts in the asset subledger.

As soon as you have done that, you then execute a depreciation run in order to post February's revaluation and depreciation amounts to the general ledger.

The program:

Posts the revaluation amount from the subledger to the general ledger

The program creates an inflation adjustment document that debits the revaluation amount to a contra account for the revaluation of the drilling equipment, and credits the revenue to an inflation gain or loss account.

Posts February's depreciation on the APC to the general ledger

The graphic shows the UNI 100 for January and the UNI 100 for February.

Posts the depreciation on the revaluation amount from the subledger to the general ledger

Although January has already passed, the revaluation amount is typically still depreciated equally over the 12 months of the year. For this reason, that means that we now depreciate not just UNI 10 for February, but also UNI 10 for January as well, a total of UNI 20. The posting is as follows:

After these postings have been made, the revaluated net book value of the drilling equipment is:

(APC + revaluation amount) – (depreciation on APC + depreciation on revaluation amount)

(UNI 12,000 + UNI 1,200) – (UNI 200 + UNI 20) = UNI 12,980.

To cross-check the result, we can work out what the unadjusted net book value would have been at the end of the month:

UNI 12,000 APC – UNI 200 depreciation = UNI 11,800

We can then adjust this amount for inflation:

UNI 11,800 ´ 10% inflation = UNI 1,180

If you add the revaluation amount to the unadjusted net book value, you get the same amount, UNI 12,980.

You repeat steps 3 to 5 until year-end. Each month, the system revaluates the asset by applying the inflation rate to its APC and the current year's accumulated revaluation amount. Similarly, the APC and each month's revaluation amount are also depreciated.

Note that in some countries, you are required to use separate G/L accounts to record revaluation of the current month's depreciation amount; and revaluation of that from previous months. For more information, see Revaluation of Depreciation Split.

At year-end, you execute the depreciation run one last time.

At this point, the whole year's depreciation and revaluation amounts have been posted to the general ledger.

You also change the fiscal year. When you do so, the system automatically carries forward the accumulated depreciation to the new fiscal year.

The next year, the procedure is the same. As before, you calculate the revaluation amounts, depreciation amounts, and revaluation of depreciation amounts at the end of each month. However, you revaluate the previous year's depreciation and the current year's depreciation separately. At the end of January, with inflation still running at 10%, you would make the following posting in addition to the others: