Partial capitalization?

[Former Member]

Dear Experts,

I have a requirement to perform partial capitalization for our capital projects. We are using result analysis which is at last settled to GL.

I looked into changing a settlement rule. However, the system gave me error saying 'Cost of sale must always settle completely'..

Any suggestions on solutions would be appreciated.

Regards,

Monica.

[Former Member]

Hi

Just to add the comment... The system behaviour is correct in your case. This is the standard accounting principle to settle the cost of sales completely and not partially. The reason behind that is the cost of sales appears on the "income statement" which is used to calculate the profit margin.

If you still wish partially settle it to G/L account.. then you need to define the remaining % as well in the second settlement rule to a different G/L (can be called as the variance or temporary revenue account).

But..take care that you meet the legal laws in this process and carry forward the balance on the second G/L to your income statement.

Hope you are clear.

Regards

[Former Member]

Thank you Hemant..

Your comment makes sense indeed. So far, what I think is to create another WBS under the same project structure to keep the amount that they don't wish to capitalize for later. Yet, I wonder if there might be any other options that sound better than this. i.e. are there any other configuration options that would faciliate this process.

During the periodic process, we run result analysis which calculate WIP, and then settlement. The FI document would be genereated for incremental balance in WBS. So, when we 'TECO' a WBSE, all balance then get posted to an asset account.

Any other suggestions?

Monica

[Former Member]

Dear experts ,

Could you please advise me about this.

For example , we have one purchase requisition has value 100,000 USD to buy asset and it includes 2 asset (asset 1, asset 2 ) at the end of month in GL capital expense we have fully expenses for asset 1 and apart of asset 2 and asset 1 was built and ready to use so we have to run depreciation for it.

Could you please advise how to transfer the amount of asset 1 into the asset and the amount of asset 2 still in AUC.

Many thanks.

[ansar_shaikh2]

U do periodical settlement to AUC and once project is completed u do the full settlement to fixed asset.

We enter processing type in the initial screen of project settlement which controls the settlement process.

WITH PROCESSING TYPE BY PERIOD: only distribution rules with settlement types to PER (Periodic Settlement), PRE (preliminary settlement) & AUC (Asset under settlement) are taken in to account. How ever settlement to AUC will happens at last. So, if with this sequence if you have maintained any settlement type PRE (Preliminary), it will consider it first & therefore settle cost portions that are not to be capitalized.

If I say in the context of your question, with the first settlement of WBS, system automatically generates a distribution rules for the settlement type AUC. If you don't want to settle all the cost of WBS to AUC, you must enter additional distribution rule for the debit to other receivers that are not to be capitalized. Use settlement type PRE (Preliminary) to ensure that these distribution rules are taken into account before the settlement to AUC.

Once the Asset under construction Phase is completed, create a completed asset. We do the same in Cj20n. next, define the distribution rules in the WBS element with settlement type FUL for the cost portion to be capitalized and enter the completed asset as receiver.

Not that distribution rule with settlement type FUL is only taken into account in the project settlement if you have used Partial Capitalization / automatic as the processing type.

So in short

u2022 When you want to settle to AUC use the distribution rules with settlement type AUC (generated by system) & processing type periodic.

u2022 When you want to settle to FXA you should use the settlement type Full & processing type partial capitalization / automatic.

However the processing type Full settlement is used for the settlement rules with distribution rules of settlement type PER (Periodic) only, in to check weather the balance still exists in the object after the settlement due to debits to previous periods.

So, don't get confused with settlement type FUL (full settlement) & processing type Full settlement. (Processing type full settlement has nothing to do with AUC)

WITH PROCESSING TYPE AUTOMATIC: the distribution rules with settlement type PER (Periodic settlement) are executed before settlement rules with settlement type FUL (full settlement). Settlements to assets with settlement type FUL are only taken it to account after the relevant WBSs are TECO.

However with Processing type Partial Capitalization, the distribution rules for the assets with settlement type FUL are used if the WBS elements are not yet TECO.

This is the difference between this two processing types.

REGARDS,

Ansar

[Former Member]

Hi Ansar,

We do not use AuC. We use result analysis to calculate work in progress from a capital WBSE, and then settle to GL account.

When we do final capitalization, we set status to TECO. At this point, we say we want to settle only X amount or X % of WBS balance to GL. So, i put a settlement rule to settle e.g. 25%. After I ran RA, I got stuck with running settlement. Since the system says 'Cost of sales must always be completely settled' regardless of what type of processing...

Please help!

Monica

[ansar_shaikh2]

You have the following options for settling objects within a project (WBS elements, orders, networks, activities):

u2022 Direct settlement

Each object is settled directly to the external cost object (examples: cost center, profitability segment).

u2022 Multi-level settlement

You settle individual objects in the project to the higher-level WBS element first. This then settles the costs collected to the external receiver.

Multilevel settlement circumvents the danger of incorrect values being displayed in reporting. Do not use multilevel settlement for the phased roll-up of values within the project hierarchy.

Multilevel settlement may cause incorrect cost figures to be displayed for the higher-level WBS element. In multi-level settlement, the system takes account of elimination of internal business volume in the structure overview and hierarchy reports only if you:

u2022 Always settle WBS elements to the element directly above them in the hierarchy.

u2022 Always settle orders, suborders, networks, and activities to the relevant WBS element.

u2022 Do not move the settled objects.

Hierarchy Structure and the Effects on Values Displayed

Check whether your project needs multilevel settlement. The documents also generated for settlement to the interim receivers may adversely affect system performance during settlement, in the information system, and in archiving.

Which of these you use depends on the project type. We recommend that you have the system generate the settlement rule.

Please go through Recommendations for customer projects, Recommendations for capital investment projects

plz let me know , if u need more help.

Regards,

ANSAR

[nitin_patoliya]

As your project you told your project is capital project. i.e investment project. incase of investment project, we creat AUC and finally fixed asset.

in this case only you can use the partial capitalisation with the help of PRE ( Preliminary settlement ) type, which are used for settlement before the distribution rules for settlement to AUC.So, with settlement type PRE,you can therfore settle cost portions that are not to be capitalized.

I think this is the only instance where we can separe cost to be settled & not tobe settle.

Experts validate my understanding.

Regards

Nitin