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.