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The Case

Let’s suppose that we’re a fragrances company, selling perfumes, and our management decided to purchase a new car on Jan 1st, 2018 with an amount of 120,000 TRY for a useful life estimated for 10-Year, and Salvage Value 10% of APC value, and this one will be assigned to the Country Manager, …
The depreciation Method: Straight-Line

Go through the Process in SAP Business One to address this situation.

 

Solution Process

Posting Period

Make sure the defined posting period serves the new asset for Capitalization and Depreciation purposes, be sure the Period is Unlocked (not closed), if it’s closed you will not be able to post any record in it.

Modules > Administration > System Initialization > Posting Periods

IMPORTANT NOTE
If we’re adopting one Posting Period that serves the whole year, e.g.
for some reasons, we bought an asset in the beginning of the current year, we wanted to record it in July of this year.
If we adopted one posting period, the complete depreciation expense for that asset will be will be loaded on one day (month) without distribute them over the entire year,

 

Fixed Asset Group

If this asset is new of its kind, we should define a new Group for it,

Modules > Financials > Fixed Assets > Asset Master Data > Fixed Asset Tab > Asset Group

If this one not existed before, press Define New, and put the Asset Group Code, and Asset Group Description.

Depreciation Area

We don’t have to define a new depreciation area, because its already existed, according to our work needs there’s no need for define a Depreciation Area for the Internal Purposes and separated one for the external ones.

Now you do have the Main Depreciation Area with Code 100 and its type Posting to G/L with Indirect Posting and Net Posting for the Retirement.

Modules > Administration > Setup > Financials > Fixed Assets > Depreciation Areas

 

Depreciation Type

Modules > Administration > Setup > Financials > Fixed Assets > Depreciation Types

Now we do have to define the depreciation scenario for the Car Class, according to our management instructions;

  • Depreciation Method Straight-Line
  • Monthly Calculation Base
  • Salvage Value Percentage 10%
  • Include Salvage Value in Depreciation Calculation
  • Stop Depreciation at End of Last Full Fiscal Year
  • Percentage of Depreciation to Reverse in Retirement Year 0%
  • Valid from 01.01.2018 To 31.12.2027
  • Calculation Method Acquisition Value / Total Useful Life

 

Account Determination

Now we should define a new Account Determination Group for the Cars Group, we have 17 accounts to define. As following;

Fixed Asset Classes

As for the Fixed Asset Group, if this asset is new of its kind, we should create a new Class for it, with the Asset Type General, and Attribute Group Default Attribute Group.

 

We’ll define the Asset Class as the following;

  • Depreciation Area; 100-The Main
  • Account Determination; FA0002 – Cars G/L AD
  • Depreciation Type; FA0002 – Cars
  • Useful Life (Months); 10 Years X 12 month = 120 Months

Asset Master Data

Create Asset Master Data for the new car, define the following required info;

  • Item No. FACR0001
  • Description Turkey Country Manager Car
  • Item Group Fixed Assets
  • Check the asset is Sales and Purchase Item

Go to the Fixed Assets Tab in the Asset Master Data to define the following fields;

  • Asset Class FA0002 – Cars
  • Asset Group FA0002 – Cars
  • Assigned Employee define new one for the Country Manager
  • Uncheck Statistical, but check the Cession

 

Purchase the Asset

We’ll purchase the car using A/P Invoice which will generate the following JE posting the car value to the Intermediate Accounts for Purchase Asset and Credit the Vendor;

 

Asset Capitalization

The A/P Invoice capitalizes the Asset for us automatically, generating the following JE;
120,000     Dr. Cars    (Asset Acc-BS)
120,000     Cr. Intermediate Accounts for Purchase Assets (Intermediate Acc)

The affect of this step on the Asset Master Data,

  • The Status of the asset became Active because of the capitalization, according to our settings,
  • The Salvage value became 12,000 TRY (10% of the APC 120,000),
  • The Ordinary Depreciation Amount 12,600 TRY
    ((120,000-12,000)/60) =1,800 -> (1,800 X 7) = 12,600 TRY
  • Net Book Value – NBV = APC – Depreciation Expense = 120,000-12,600 = 107,400 TRY

Here we do have a big point,
as we see from the Master Data record, the Capitalization Date: Jul 31, 2018, and the Ordinary Depreciation Expense is (TRY 1,800 X 7) = TRY 12,600
why the system calculated the depreciation for 7 months instead of 1 month???
because in the Posting Period we defined the PP for 7 months (from Jan 2018 -> Jul 2018), even we bought the Asset on Jul, the system depreciated it from the beginning of the current year, because he’s treating with the defined Posting Period,

This step warned us about there’s a planned depreciation for this asset with amount of TRY 12,600 not being posted yet,

 

Depreciation

After defining the correct Posting Periods (which must be in Months) you can go to Depreciation Run via;
Modules > Financials > Fixed Assets > Depreciation Run

now you should choose the current period and execute

When opening the Depreciation Run window, we can’t see the journal entry for the executed depreciation, we can see it from the Journal Entry and go to the last one,

In the Asset Master Data, Depreciation Tab, we can now see the changes after posting the depreciation, under the Overview tab, we won’t see changes, but under the Depreciation tab we can see the depreciation expense has been recoreded under the Posted Depreciation column,

 

Retirement – Scrapping

From Modules > Financials > Fixed Assets > Retirement

Define the posting date, if you want we can assign this lossing to a cost center,

We have the ability to scrap partial part from the asset through check the Partial checkbox,

We’ll choose the asset, and scrap 45% from it,

Defining APC filed won’t affect anything!

We have the ability to preview the Journal Entry before posting it,

Journal Entry Clarification
Accumulated Depreciation: reduce the Accumuated Depreciation with 45% from the old amount (12,600) = 12,600 – 45% = 5,670

Asset Amount = APC – Retired amount = 120,000 – 45% = 54,000

Retirement with Expense = Asset – Accumulated Depr. = 54,000 – 5,670 = 48,330

What’s is the effect of this step on the Master Data,

  • Acquisition and Production Costs – APC = TRY 66,000
    Purchased Price: TRY 120,000 – Scrapping 45% = TRY 66,000

 

  • Ordinary Depreciation = TRY 6,930
    (APC (TRY 66,000) – Salvage Value 10% (TRY 6,600)) = TRY 59,400
    Depreciation for 60 months (TRY 59,400) -> per month = TRY 990
    for the selected posting period (7 months) = (990 X 7) = TRY 6,930

 

  • Salvage Value 10% from APC = 66,000 X 10% = TRY 6,600
  • Net Book Value – NBV = APC – Depreciation Expense
    66,000 – 6,930 = TRY 59,070

From the Value tab we can see,

There’s a negative amount in the depreciation column when we retired 45% of the asset, this amount came from:
the old Accumulated Depreciation account’s balance when we depreciated it: 12,600 we have to reduce this amount with a percentage of 45% = TRY 5,760

The total amount of Depreciation for 7 months will be:
Old APC depreciation = (120,000 – 12,000) = 108,000/60 = 1,800 X 7 = 12,600
New APC depreciation = (66,000 – 6,600) = 59,400/60 = 990 X 7 = 6,930

Asset Revaluation

we have an accumulated depreciation balance 6,930

the NBV = TRY 59,070

after reevaluating the asset, we found that its new amount 45,000
we do have reduction TRY 14,070

from Modules > Financials > Fixed Assets > Asset Revaluation

we don’t have the ability to preview the journal entry,

via this journal entry, we declared that, we have loss about 14,070 for that we’ll reduce the asset amount via indirect way, through the depreciation expense and the accumulated depreciation,

How does this step affect the Master Data?

The reduction that occurred to the asset cased to have a new amount under the Write-up column (TRY 14,070) and the NBV became (TRY 45,000)

How does this affect the Accumulated Depreciation?

We had accumulated depreciation 6,930, and now we have to add to it 14,070 -> the new amount will be 21,000

 

Hope this helps,

for your suggestions and inquiries, please feel free to reach me out,

KENAN JADDENY

 

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