Provisions and Reserves

 Provisions

The term PROVISION refers to providing certain estimated amount of funds retaining from the profits for the purpose to meeting the requirement of expected future liabilities when they fall due for payment.  Amounts provided as Provisions are estimated based on the past experiences, an example of which can be staff salaries.  Staff salaries are the expected liability that incurs at the end of each working cycle and falls due for payment at its set payment date.

In fact, uncertain of the actual amount, providing provisions helps with paying off the expected liabilities on time when they actually incur.  The provided amounts may likely to fall short or result in excess to actual amount when the actual amount is determined.  However, appropriate adjustments are made as they apply. 

Reserves

The term Reserves in accounting refers to amounts retained from the retained earnings for meeting the contingencies in case they occur.

Creating reserves for contingencies adds to business soundness and the affordability to meeting the contingencies when they occur all of a sudden out of expectations.  Thus such reserves provide businesses stability and adds to its continuity as a business concern.

Reserves and provisions are generally retained within the business.  As a result, it adds to working capital and provides the flexibility of conducting better business operations.

Retained amounts, when invested outside the business are called Reserve Funds such as Call Deposits. The prefix Fund generally denotes the presence of specific outside investments.

The distinguished characteristics of the provision and the reserves are:

The indispensable IT and SAP

Yes, there was a time when automobile was considered to be a luxury.  However, can anyone of us today think of transportation without thinking of an automobile in our day to day needs? Well, the count of those thinkers does not have to be more than 2 percent and it should include people who ride means other than automobile as a hobby. 

As the time passed and the life became more demanding, people kept on coming up with new ideas and inventions.  Though, those new ideas were difficult in learning in the beginning but people got used to and adopted it with the time.

As the demands of life and the business grow, the sustainability and the competition becomes a question, you will not have any other alternative except to study the new upcoming products, its features, pros cons and to see how it does benefits you and adds to your overall growth to meet the everyday challenges.

So is the IT, information technology.  The introduction of computers and with the office and the business automations it reduced the manual work just about to nothing, saved the cost of labor, saved the cost of huge stationaries; provided an extra ordinary accuracy giving you an unbelievable control, faster means of processing and so the communication and you name it, programmers always there just to program your thoughts to put it on automation.

In today’s life, it is not about whether to go for automation or not.  That topic has been left far behind. It is now to choose from the best possible systems that suits your needs and wants.  It is about the efficiency, accuracy, viewer transparency, security and yet in time delivery.  It is about to choose the right system.

 SAP happens to be the most popular systems in today’s world of global businesses for its careful architecture and design. It manages to integrate and automate end to end any type of industry, regardless what type of business it is into, how huge or small the business, SAP is at the top to offer you the best efficient systems for smooth running and operations, giving all the means and tools a business can possibly desire. 

SAP ERP - A few terms and basic information

ERP -  Enterprise Resource Planning, it integrates entire functions in an Enterprise in one system.  Facilitates free flow of data among all departments. 

 

 

ERP   Advantages

No data entry duplication, once an entry is processed at any functional point can   be shared by all across the organization.

Manages internal and external information, embraces each and every functional area, finance/accounting, human resources, material management, production, sales and distribution, customer, vendor relationship etc.  Manages connections with business partners.

Accuracy in data processing, no mismtach reporting.

Runs on a variety of hardware and network configuration.

Employs database as repository for information.

Does not need periodical updates, operates in real time.
          
ERP   VARIOUS PACKAGES

 SAP, Oracle, Financials, Peoples soft, BAAN, J. D. Edwards etc.

SAP   System Appllication and Products in data Processing

          R/1  Real time data processing Release 1 - 1972
          R/2  Real time data processing added with various countries and currencies -
                Relase 2 - 1980
          R/3  Relased in 1990 - Real time data processing 3 tiers architectural designed
                                               1. Appliction Server, 2, Data based server and 3. Presentation
          R/3 1 release 1992
          R/3 2.0, 2.1 release 1993
          R/3 3.0, 3.1 release 1995
          R/3 4.0B  June 1998
          R/3 4.5B, 4.6A and 4.6B release 1999  mySAP.com web based
          R/3 4.6C 2001
          R/3 4.70 Enterprise release 2003,
          R/3 5.0
          R/3 6.0
          Net weaver 2004 - Integrate information, people and process
         
SAP   FI  stands for financials

SAP  CO stands for Controlling

General areas covered in FI and CO are General Ledger, Accounts Payable, Accounts Receivables, and Asset Accounting.  The areas that generally fall under the controlling area are,CA Cost element accounting, CCA Cost Center Accounting, IO Internal Orders, PCA Profit center accounting, PC Product Costing and PA Profitability Analysis.

A SAP FICO Consultant's role play can be a:

• Project Manager
• Senoir Consultant
• Junior Consultant (A project of 3 to 6 member)
• Support Consultant ( I.e., IBM, Accenture)
• A Core Team Member
• An End user

     
           

Planning and Budget in SAP

PLANNING AND BUDGETING

 

Strategy, Planning, Budgeting and Execution are the ongoing process cycle in any business enterprise and happens to be the key to survival, stability and yet compete in the world market. 

Based on its needs and the benefits, it is the efficient allocation of resources to meet theoperations expenses for a period of time.

Planning and budgeting do sound much similar in terms of their processing. In a way, they are both allocated with fixed amount of funds to meet the operational expenses for a planned period of time.

However, SAP, in real time application; identifies them in their clear unique definitions in view of their functionality and purpose of use.

In terms of SAP:

PLANNING is explicitly a tool for department use, where as

BUDGET is an official supported spending plan.

Budget is stored in a special plan version 0, 

(Usually approved OBFP or OSP)

PLANNING in SAP

SAP’s planning component offer a planning tool for organization departments and areas.  Departmental plan amounts are entered manually by the department.  SAP places no built in restrictions.  Therefore it becomes the responsibility of the departments for the accuracy of the numbers in their plans.

Calculating Employees Benefits, facilities and Administrative Cost rates (F&A) becomes the responsibility of the Planners to calculate and to enter in their plans as SAP does not automatically calculate these costs.

Planning in SAP gives the advantage of the ability to run reports on your planning data besides the instituted budget.  Planning with SAP, you can update your plan at any point of time and be able to run new reports accordingly.

What is a Depreciation?

Depreciation is the portion of a Fixed Asset consumed over a period due to its use, wear and tear and decay caused because of elements of nature, in process of producing and operating business.

Assets happen to be the part of Capital introduced at the beginning of financial year in a business. Depreciation is one of the most import costs of a business. In accountancy, the capital loss on fixed assets over a period of its use is conserved by way of charging depreciation and when the asset becomes unusable it is disposed off or scraped.

Objectives:

Provision to replace the depreciable assets i.e., Machinery, Plant, Truck and Vehicles etc.
Allocate proper cost of acquisition over the years of assets useful economic life
Appropriate profits
Reflect the true business position

Considerations:

Usually the following points are taken into consideration when estamating the amount of deprecation to be provided.

Original cost of Asset

Estimated working life of Asset

Estimated maintenance repairs and renewal expenses

Estimated scrap or residual value when the assets completes its useful life

Chances of Assets obsolescence due to new inventions

Methods: There are several methods of providing depreciation. The most common are
Straight-Line method

Declining Balance method: Written Down Value method, Double Decling Balance method

Straight-Line method: It is the most common method of determine amounts to be charged to depreciation.

Cost + Erection charges - Scrap Value = Annual Depreciation

Assets Life number of years

Rate of Depreciaton= Annual Depreciation x 100

Cost of Asset + Erection Charges - Scrap Value

If a Vehicle purchased at $5,000, estimated life of vehicle is 5 years and scrap value $ 300

5000 - 300 = 4,700 when devided by vehicles estimated life i.e., 5 years then the amount to be charged to depreciation each years is $940.

Written Down Value method:

In this method depreciation is charged at a fixed rate on the reducing balance of the asset each year. As a result each year the amount of depreciation charged keeps on reducing because

the depreciation is calculated on the written value of asset each year.

Double Declining method:

Under this method depreciation is charged in the same way as it is done under written down value method. The difference between the two is the rate. Under this method the rate of depreciation charged is doubled the straight-line method rate.

SAP FI/CO module with its simple features makes Accountants life easier in Asset Accounting and applying Depreciation.  Use of application steps added with the examples is explained here below with the purpose for learners to exercise practice

Our assumed walking through Example Company here is SPIC.

Asset Accounting

Subsidiary Ledger

Terms – Chart of Depreciation – Copy Germany Char of Depreciation (client 800)

Copy Germany & India (client 000)

Depreciation Areas → Book Depreciation

Income from Depreciation

Costing Depreciation

Group Depreciation

In Books only Book Depreciation will be posted.

Depreciation methods – Straight line method (SLM)

Written down value method (WDV)

Depreciation Keys Rate + Method

i.e. 5% SLM
5% WDV

Posting
Keys 70 Asset Debit
75 Asset Credit

Transaction 100 External Asset acquisition

110 In house production

210 Retirement is revenue (consideration)

SAP MODULES

Well speaking about SAP modules, you might know and must have seen a long list of its modules those made available for the businesses to swing in its full potential.

At times it is confusing and there are chances of being getting lost with the SAP's long list of modules dressed in their acronym's, leaving readers pondering about what to do with all that and after all what is that all about?

To make it simple, those are the phases of projects done by SAP programmers time to time as they came in from clients as their business situations demanded.

For an example, suppose you are in a business and holding a key decision making position. Now, imagine about the scenario where you are in a situation and have to make some important business decision, you needed some urgent data to reach a decision based on it. But you are stuck right there just because the information you needed was not available to finalize the deal and can not do anything about it. What would you do? You would have looked forward and wished that if you had some better efficient system that could have helped you with the information you needed right there.


That is how those scattered modules developed by SAP came in to help meet busnesses needs more efficiently and continued on adding to their list making it more longer. The most recent popular SAP modules seen are:

SAP FI, CO, MM, PP, SD, PM, AM, PS, QM, SM, HR, BW, CA, APO, CRM, PLM, SRM, APO Basis, ABAP/4, and many more.

Each of SAP modules has its list of sub modules that I have skipped here.

Where quite a number of modules seen on SAP's long list, it is a great convenience for the businesses to make use of them adopting a full enhanced environment to meet their market challenges they come across day to day business life..

Whether it has to do with 'SAP all in one' or the individual modules, in fact,it is about making your business meaningful, it is about your business to work.

What is done by GR/IR regrouping?

What is done with GR/IR regrouping in SAP?

GR/IR regrouping is a Periodic closing process and is exercised to

1.       Analyze and ascertain net out balances for the assets and liabilities accounts.

2.       Carryout necessary adjustment postings

Since in both the situations debit and credit entries are posted to GR/IR account as applies, the GR/IR account would have the net out value of the above transactions. However, the GR/IR regrouping program analyses all the above open items and regroups them to the correct adjustment accounts.

Balances on account of BNG transactions are regrouped to an asset account and similaly, balance on account of GNB transactions, it is regrouped to a liability account.

SAP FICO

SAP Financial and Controlling happens to be the key module in its overall ERP solutions. There are times when, even gurus, have to brain storm to find answers to the issues they come across while working on certain project.  Networking is one of the best effective tool to work in such situations.  Someone somewhere in your circle might be holding a quick answer to your challenge just on his finger tips and you don't get idea about it at all.

Learning never was an ending topic in anyone's life.  It is an on going process that we keep along with for life. So does the world, very much similar to a project that always has to unpack some new challenge for you to meet with.