Kees van Westerop alerts you to some unexpected effects when you use the smoothing indicator, which spreads depreciation costs over the current year.
Key Concept
Asset accounting in an SAP system offers several ways to control the depreciation of fixed assets. It enables the simultaneous posting of asset depreciations as well as the simultaneous reporting of depreciation according to several accounting principles.
In the example of the March acquisition, the depreciation is spread from March up to and including December. However, there is no change in the value of the depreciation. Assume depreciation in the year of acquisition should be $6,000. In case smoothing is not used, the depreciation from July up to and including December will be $1,000 per month. In case smoothing is used, then the depreciation will be $600 per month. Depreciation is posted from March up to and including December.
Note
This article assumes that you have basic knowledge of SAP’s Fixed Assets module.
Configuration
To maintain the smoothing parameter, follow IMG menu path FI > AA > Integration with General Ledger Accounting > Post Depreciation to General Ledger Accounting > Specify Intervals and Posting Rules or use transaction code OAYR. Because smoothing is related to postings, the smoothing indicator can be set only for depreciation areas that post to the General Ledger.
In this transaction, you need to drill down to the company code and depreciation area.
Figure 1 shows the Posting Rules details and the smoothing indicator.
Figure 1
The Smoothing indicator
You can set the indicator per the combination of company code or depreciation area.
Business Processes
The smoothing indicator has a direct influence on the values shown in the asset value transactions AS03 and AW01N. (In those transactions enter the asset number and company code and click the Asset value button [AS03] or press Enter [AW01N]). Because this is basic I do not show it in this article.) The example of the mid-year convention is used to explain the use of the smoothing indicator. Figures 2 and 3 show the difference between planned depreciation with and without the smoothing indicator set. Without the smoothing indicator depreciation will be posted from July onward, and with the smoothing indicator set, depreciation will be posted from March onward. The figures also show that the total depreciation costs are the same in both situations.
Note
The first depreciation run is in March.
Figure 2
Planned depreciation without smoothing
Figure 3
Planned depreciation with smoothing
Impact on Derived Depreciation Areas
A derived depreciation area is a depreciation area for which the values are calculated based on other depreciation areas. This may lead to data that seems incorrect, but is not. It is because of the way SAP has designed the functionality of the smoothing indicator and SAP doesn’t consider this to be incorrect.
For example, in the current company code, depreciation area 02 is the difference between area 01 (local GAAP) and area 70 (local investment grants). Now when area 01 doesn’t have smoothing and area 70 does have smoothing, the effect is inconsistent reporting in AW01N (asset explorer). When there are no investment grants, depreciation area 01 and area 02 must show the same planned values. (You can select the depreciation area on the left side of the screens shown in Figures 2 and 3.) However, Figure 4 shows an example in which this is not the case because of smoothing. Depreciation for this asset starts in April, and the depreciation run for March hasn’t been run yet. In Figure 4 the values of depreciation areas 01 and 02 have been placed into one figure.
Figure 4
Comparison of depreciation areas 01 and 02
Impact on Reporting
Whenever you start a report to display planned values, you see that the setting of the smoothing indicator doesn’t influence the reporting. The report shows the data as if the smoothing indicator hasn’t been set.
This is shown using the asset history sheet as an example. Figure 5 shows the result for the asset used in the above example when using transaction code AR02. It shows the value up to and including March. As you can see, no planning values are shown although depreciation will be posted. The reason is that the smoothing indicator has been designed only to level the actual postings. The planned values are not influenced.
Figure 5
Asset history sheet
Reconciling Asset Accounting and FI
If you want to reconcile, you also may experience issues when using the smoothing indicator. Assume you run the depreciation run always on the first day of the new period. If you have acquired an asset on the morning of that first day, this asset is depreciated, but it does not appear on your asset history sheet of the period to be closed because the first acquisition is in the next period. The consequence is that there will be a discrepancy between the depreciation value shown in the asset history report and on the depreciation G/L account.
Depreciation Simulation
Depreciation simulation is a special kind of reporting. The reports mentioned in the previous section only report data that is related to existing assets. Depreciation simulation reports show not only data related to existing assets but also data for assets that do not yet exist. For example in project management you can enter data for assets that will be put in use next year. Depreciation simulation calculates future depreciation values for these assets based on planning or the budget data of the project.
There are two standard reports for depreciation simulation. The first is S_ALR_87012936 (this is the same as AR18), and the second is transaction code S_ALR_87099918. The first transaction is just for reporting. The second transaction is also integrated with managerial accounting (CO). Therefore, it is more important because those figures are used within the planning module. Although the description of the transaction is “Primary Cost Planning: Depreciation/Interest” the transaction also shows depreciation simulation data from internal orders/projects/investment programs.
Figure 6 is an example to show how the report looks for the asset. The report doesn’t show individual assets. However, it is clear that smoothing is not taken into consideration. If this planning is transferred into CO, nothing will be planned for the first six months of the year. As the depreciation is to be posted in the first periods as well, this leads to differences between planning and actual figures.
According to the planning shown in Figure 6 you get six months of depreciation. In reality the actual depreciation will be posted in more than six months. However, the total amount is the same.
Figure 6
Example of depreciation simulation
Some Drawbacks
Smoothing can be used as a tool to spread the first year depreciation costs equally over the periods. However, there are some drawbacks as well:
- Within reporting, the smoothing indicator is not taken into consideration.
- Reconciliation between asset accounting and FI may be more complex.
- For depreciation simulation, the smoothing indicator is not taken into consideration.
When you want to start using smoothing, you should takes these drawbacks into consideration. SAP Note 30260 explains the vision of SAP behind smoothing. SAP Note 1562637 explains the difference between smoothing and the catch-up method. The catch-up method is for revaluation of assets and how to correct the depreciation amounts.
Kees van Westerop
Kees van Westerop has been working as an SAP consultant for more than 25 years. He has an MBA degree in mathematics and a degree in finance. Kees has been concentrating on the financial modules, especially in general ledger accounting, cost center accounting, and consolidation. He also has a great deal of experience with rollouts of kernel systems and integrating finance and logistics.
You may contact the author at keesvanwesterop@hotmail.com.
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