Homeowners in the United States know all too well the bite of location-specific property taxes. However, that’s just financial pain. Accountants in companies with physical sites in multiple locations know the annual mental pain of compiling a list by state of the assets. Not just “property” assets such as land and buildings, but all fixed assets, including plant equipment and machines.

The R/3 system’s Fixed Asset Master helps here to some degree, because it allows you to include the plant or the cost center that you want to associate with any given fixed asset. However, be careful when you run that standard report of your assets by plant or cost center. Can you be confident that the “owners” shown are correct and that, therefore, you are paying the right taxes to the right states? If you are in a company that has lots of long-term capital projects going, and if you use the CO module’s WBS (work breakdown structure) to represent their in-progress costs, we want to warn you about an unpleasant surprise.

The Problem

Some companies set up their WBS with the mistaken assumption that they will always know the location of the final assets created by its capital projects. When the end users create the WBS masters, they type in a location code that is not the final destination. This is a common error that capital-intensive companies tend to make. Let’s look more closely at why that can lead to trouble.

We’ll use the example of a company that buys or builds machines it plans to lease to a future customer. Upon receipt of the equipment at a warehouse, the WBS is placed in TECO (technically completed) status. The life-to-date costs of the WBS-linked asset-under-construction master (in the Fixed Asset module) are capitalized (“settled”) to a fixed asset master. The money is on the balance sheet for the correct company code, waiting to be depreciated. Every-thing seems fine. The machine is then shipped to a customer site, put into service, and the lease payments begin.

But “everything” is not fine. This method of a handoff between the CO module (WBS master) and the FI module (FXA master) leads R/3 to automatically put the receiving warehouse location — and not the customer’s site location where the machine was eventually shipped — in the Asset Master. This is an example of a process that seems perfect in one module, e.g., Project Systems (PS)/WBS, but is wrong in another, e.g., Fixed Asset. Here’s how you can avoid this situation.

Recommended Process

• When you don’t know the final location at the time of purchase, purchase the equipment as plant stock (material/ equipment is managed as general stock). The equipment is not assigned to any particular sales order or project. Use the normal POR, PO purchasing process in the Materials Management (MM) module.

• Assign the asset class at the material/ equipment level, not at the WBS level.

• Place the location code and functional location code on the PM equipment record when it is a technical asset. An alternative is to put the location code on the record when the equipment is shipped to the final installation site.

• Track the equipment through the PM module where the equipment record is tied to the asset record.

This also applies to companies purchasing or building equipment to deploy to their own sites at a later date. If your company has similar problems, it is probably time to revisit the WBS of the PS module and its related investment management, material/equipment requisition, and fixed asset account process. This affects the MM, PS, Asset Management, FI, CO, and PM modules.