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Nice work Nathan.
Thanks Nathan for an excellent series on this topic. I have question on the 'price key date'. In your example, the asset was 1st capitalized on 8/1/2011 and is expected to be retired in 12/2040. What is the 1/1/2012 date then and what does the CE of Price KD reflect? Also is the Current CE of $9917828 the current cost of retiring the asset? Is this a derived figure based on the discounted rate?
The 1/1/2012 date is the price key date. It is used to provide a date valuation reference on the $1MM that I entered. i.e., the $1MM was the estimate to remove the asset and it was given on 1/1/2012. But since the CEP needs to be valuated on a prior date, the $1MM is initially discounted back to this date four months earlier (9/1/11) which results in a slightly smaller number.
The amount reflects all of the costs estimated to retire the asset and restore the property to it's original condition and it's completely independent of the underlying asset's value. In theory, the asset is worth $0.00 at retirement anyways.
Thanks Nathan. That explains it.
A couple of more questions:
1. Is Lease Accounting Engine mandatory in order to implement AROM?
2. Once the add on is implemented, is it considered a SAP CDP (meaning we need SAP help to configure), for example like the Asset Mirror Tool.
3. Do you plan to release more follow on articles on this subject.. I think you mentioned some where in the 2 blogs that you plan to release more documents on this topic.
Thank you very much for an excellent write up
Great work and nicely explained. Thanks for sharing this knowledge 🙂
Thanks & Regards,