REAL TIME BUSINESS BLUEPRINT OF ASSET ACCOUNTING


CONTENTS

EXECUTIVE SUMARY

1 Organization structure………………..………………………………….
1.1 Company Code……….………………………………….
1.2 Business Area……….………………………………….
1.3 Chart of depreciation……….………………………………….
1.4 Depreciation Area……….………………………………….

2 Master Data………………..
2.1 Asset Classes…………………………………….
2.2 Asset Master…………………………………….


3 Business Processes………………..
3.1 Assets Master Maintenance……………………………….
3.2 Acquisition of Assets………………..
3.3 Retirement of Asset……………………………………………
3.4 Depreciation………………………………….

4 Annexure………………………………………………………….


1 Organization Structure
The following organizational definitions have been done at VIL.

1.1 Company Code

Definition and Meaning
The company code represents the smallest organizational unit for which a complete self-contained set of accounts can be drawn up for purposes of external reporting. Generally, a company code is defined to represent a legal entity. The process of external reporting involves recording all relevant transactions and generating all supporting documents required for financial statements (balance sheets, profit and loss statements and so on). All transactions in the financial application are recorded with reference to a company code. It is a four character alphanumeric key and is entered while posting business transactions or creating company code-specific master data like G/L Master Record, Vendor Master Record, for example.

Definitions at VIL
To meet the business requirement, the following company codes are created:

(i) VIL Manufacturing
(ii) VIL Narmada Glass
(iii) VIL Marketing
(iv) VAL
(v) VCL (decision awaited in Steering Committee)

Similar such companies will be defined at a later stage to define the subsidiaries or group companies of Videocon Group.

1.2 Business Area

Definition and Meaning
Business areas are used to facilitate external segment reporting across company codes, covering the company's main areas of operation (product lines, branches). All balance sheet items, such as fixed assets, receivables, payables, and material stock, as well as the entire P&L statement can be directly assigned to business areas.

Definitions at VIL
The business area will represent a location, whether a production facility or a branch. This will facilitate branch reporting requirement. The following business areas have been defined for VIL.
Business Area Description
Chittegaon
Noida
Dehradun
Refer Annexure-FI-1 for complete list of business area.



1.3 Chart of Depreciation

Definition and Meaning
The chart of depreciation contains the defined depreciation areas. It is predefined to contain the rules for the evaluation for assets. The company code will be allocated to the chart of depreciation. One company code can be attached to only one chart of depreciation. The chart of depreciation and the chart of accounts are completely independent of one another.




1.4 Depreciation Area

Definition and Meaning
An area showing the valuation of a fixed asset for a particular purpose (for example, for individual financial statements, balance sheets, for tax purposes, or management accounting values).

Definitions at VIL
There will be only three depreciation areas, which are as follows:
(i) Depreciation for accounting
(ii) Depreciation for costing
(iii) Depreciation area for Income tax




2 Master Data

2.1 Asset Classes

Definition and Meaning
Asset classes are the most important means of structuring fixed assets.
Unlimited number of asset classes may be defined in the system. Asset classes are used to structure the assets according to the requirements of the organization. Asset classes apply in all company codes. Examples of Asset classes are Land, Building, Plant and Machinery, etc.

Definitions of Assets Class at VIL

The following asset classes for assets are defined at VIL with the GL Accounts as Mentioned Below. Separate asset classes will be created for local and import where bifurcation is required.

• Goodwill
• Land
• Plant & Machinery
• Building
• Furniture & Fixture
• Patent, Trade Mark & Designs
• Vehicles
• Computers
• Electrical Installation
• Office & Factory Equipment
• E.S.P. A/c
• Furnace
• Capital WIP


2.2 Asset Master

2.2.1 Master Data Maintenance
In order to make it easier for the user to create, maintain and evaluate master data, the varied individual information is structured according to its area of use and the relevant functions in the system. The asset master record consists of two main parts:

General Master Data
This part of the master record contains concrete information about the fixed asset. The following field groups exist:
• General Data (description)
• Inventory (Quantity)
• Posting information (for example, capitalization date)
• Time-dependent assignments (for example, cost center)
• Information for plant maintenance
• Origin Data (Vendor Information)
• Internal Specifications
• Valuation of Net Asset
• Depreciation Areas for managing different asset values under the same asset master record.

Data for Calculating Asset Values
Depreciation terms can be specified in the asset master record for each depreciation area in the chart of depreciation. In order to make these specifications, the master record contains an overview of the depreciation areas. In addition, there is a detailed display available for each depreciation area. If there are depreciation areas that are not needed for a specific asset, it is possible to deactivate these depreciation areas at the asset level.

The following depreciation will be defined in the asset accounting:

(i) Depreciation for accounting
(ii) Depreciation for costing
(iii) Depreciation area for Income tax


Number Assignment
The asset number uniquely identifies a fixed asset. It always consists of the main asset number and the asset sub-number. There are two ways of carrying out number assignment in the system:

• External number assignment
• Internal number assignment

In the case of external number assignment, the user directly assigns the asset number. The system displays only the defined number interval, and issues an error message if a number is already assigned. In the case of internal number assignment, the system automatically assigns consecutive numbers.

In VIL, internal number assignment will be defined for all asset classes ie., the assets will be managed with numbers assigned by the system.



3 Business Process

3.1 Assets Master Maintenance
The Asset Management component is used for managing and supervising fixed assets with the SAP R/3 System. In SAP R/3 Financial Accounting, it serves as a subsidiary ledger to the FI General Ledger, providing detailed information on transactions involving fixed assets. Asset accounting encompasses the entire lifetime of the asset from purchase order or the initial acquisition (possibly managed as an asset under construction) through its retirement.

The Plant Maintenance (PM) component offers functions for the technical management of assets in the form of functional locations and equipment. In other words, the Asset management is tightly integrated with the plant maintenance module of SAP. In VIL, Plant maintenance will separately create an equipment master for asset that is managed in the PM module.


3.1.1 Scope

The functions for handling assets enable you to illustrate and document the handling of fixed assets for accounting purposes.

3.1.2 Expectations / Requirements:

1. Identifying fixed assets cost center wise, profit center wise, & co code wise.
2. Details of assets lying at vendors.
3. Insurance details of each asset.
4. Register of fixed Assets.
5. Details Of WIP Assets


3.1.3 Explanations of Functions and Events

1. Determination of Asset class: Each GL Account in the balance sheet represents asset class for example, plant & machinery, vehicles.
2. Definition of chart of Depreciation, Depreciation area, method of depreciation & key of depreciation for each asset class.
3. Maintenance of Asset Master- This part of the master record contains general information about the fixed asset.
4. The asset number is a sequential number internally assigned by the system.


3.1.4 Business Model
Attached Flow chart.

3.1.5 Changes and its Implications

1. Proper assignment of Asset to cost center & profit Center.
2. Account Determination for each asset will accumulate FI data based on each asset class.
3. Actual date of acquisition has to be mentioned in master data of assets.
4. Maintain the record of Assets, which is transferred across the cost center/profit center.

3.1.6 Description of Improvements

1. Fulfill the Co. law requirement pertaining to the fixed Asset through
System (Provided that all transactions including depreciation is posted in the system).
2. Proper monitoring of Assets will be possible with detailed information.
3. Maintain block wise Assets for Income tax purpose
4. The SAP’s Asset Master feature acts as one umbrella to manage all information related to the asset. The asset master record has the feature of storing the description, physical inventory details, quantity, location, cost center, plant, business area, insurance details. Further in SAP, the depreciation related information will be stored under the same asset master under different depreciation areas.
5. Automatic calculation and posting of depreciation on a monthly basis.
6. Computation of profit/loss on sale of asset.
7. Information system provides list of assets by class, cost center etc.
8. Asset explorer provides details of transactions and planned depreciation values across multiple years in the same screen.


3.1.7 Gaps and Possible Approaches to Bridge the Gaps
None

3.1.8 System Configuration Considerations
None

3.1.9 Data Migration Considerations

The balances of Assets gross value and depreciation of opening assets to be uploaded in SAP for that the individual asset wise detail is required e.g its gross value, accumulated depreciation, cost centre, business area, plant, location etc.

3.1.10 Interface Considerations
None

3.1.11 Authorization and User Roles
Creation and change of asset master
Maintenance of depreciation key


3.2 Acquisition of Assets

3.2.1 Scope

Proper recording of all types of transactions related to fixed assets and proper control over the assets.

3.2.2 Expectations / Requirements:

1. Recording of all assets at its fair value.
2. Capitalizing all expenses incurred until the assets are ready and put to use; like freight, first time insurance, erection charges etc.
3. If any Assets acquired on loan, capturing the interest up to the period of Capitalization.
4. Detail of hypothecated assets.
5. Proper accounting of inventory (in-house produced goods) which are transferred to fixed assets like air conditioners, moulds etc.
6. Acquisition of spares specifically for capital assets being purchased and directly capitalized to an asset or asset under construction at the time of receipt only while in fact it may remain in stores physically therefore for inventory tracking of these spares statistical posting (only quantitative detail) is required. Similarly at the time of issue of these spares later on again a statistical reduction is required.
7. Acquisition of assets with free of cost spares, these spares are required to be maintained as inventory having the same material code regularly purchased with NIL value without affecting the MAP of regularly purchased spares, because these spares have already been capitalized as fixed asset.

3.2.3 Explanations of Functions and Events

1. For purchase of any Asset, concerned Dept. raises the purchase requisition.
2. Accounts dept. creates the asset master.
3. For Purchasing new Assets, PO is raised by two ways –
a) Account Assigned – If PO is Account Assigned, then on the preparation of GRN the Asset is directly capitalized.
b) No Account Assignment – If PO is not Account Assigned then on the preparation of GRN Inventory Asset A/c is debited. Once the Asset is ready to use the Inventory Asset A/c is transferred to the Asset A/c.
If the Asset is excisable, then 50% of excise will be utilized in the year of put to use & the remaining 50% of excise will be utilized in the following year.
1. For the assets, which are not yet installed, an asset master is created as Capital work in Progress. As and when the asset is installed, the balances under WIP asset will be transferred to the final asset, for which an asset master record will be prepared under an appropriate asset class.


3.2.4 Business Model

Attached Flow chart.

3.2.5 Changes and its Implications

1.Purchase Requisition of Fixed Assets must specify the cost center.
2.Internal order in CO module will be used for WIP Assets.

3.2.6 Description of Improvements

1. Manage the history of Assets from their origin to their disposal/scrapping.
2. Proper capitalisation of all the incidental expenses till the time of capitalisation.
3. Cost centre wise Assets detail will be available.
4. Capitalisation of asset can be done through AUC (Asset under construction) wherever relevant.
5. From AUC part capitalisation is possible with the balance written off as expense in a cost centre.
6. Revaluation of asset is possible as well as unplanned depreciation on assets that are devalued.


3.2.7 Gaps and Possible Approaches to Bridge the Gaps
None

3.2.8 System Configuration Considerations
None since the Asset Accounting module will be on the same R/3 system server.

3.2.9 Data Migration Considerations
The balances of Assets gross value and depreciation of opening assets to be uploaded in SAP for that the individual asset wise detail is required e.g its gross value, accumulated depreciation, cost centre, business area, plant, location etc.

3.2.10 Interface Considerations
None

3.2.11 Authorization and User Roles
Asset acquisition
Asset capitalisation




3.3 Retirement of Assets

3.3.1 Scope
Fixed asset retirement is the removal of an asset or part of an asset from the asset portfolio.

3.3.2 Expectations / Requirements:

1. Calculate the profit/loss on sale of assets.
2. Proper accounting of accumulated depreciation of the asset sold.
3. Inter business area, profit center transfer should be taken care.


3.3.3 Explanations of Functions and Events

1. Retirement with Revenue- In this case first post the revenue to customer from sale of assets & then the asset retirement. The gains or losses realized were calculated automatically and posted to the accounts defined in customizing.
2. Retirement due to scrapping- When an asset is retired without revenue, the system generates a loss for asset retirement without revenue equal to the retired. Net book value instead of the revenue and gain/loss posting.
3. In case of assets given to dealers and employees loss/profit on retirement or transfer should be separately accounted.
4. In case of transfer or retirement of asset during the month system should calculate depreciation up to the date of transfer or retirement.


3.3.4 Business Model
Attached Flow chart.

3.3.5 Changes and its Implications

Present at VIL only the excise invoice at the time of sale of asset is being created while there is no accounting effect comes on the block of asset, as well as no entry of Profit/ loss on sale of asset has made in books of accounts.

Presently VIL is using depreciation run at year-end to move to next fiscal year while there is no depreciation booked monthly. SAP recommends running and booking the depreciation monthly. If the depreciation is not run monthly it does not show the accurate figure of assets value and it will not calculate the profit and loss on sale of asset.

3.3.6 Description of Improvements

1. Arriving at the profit/loss as & when the sale of asset is done.
2. Disposal detail maintained at the asset register.
3. Even though the asset is scrapped or retired historical information
of the asset will continue to be available in the system.
4. Keep track of subsequent revenue or cost relating to asset after retirement.

3.3.7 Gaps and Possible Approaches to Bridge the Gaps
Accounting of gain/loss on sale of asset to dealers/employees will not be possible to be accounted differently from other retirement transactions.


3.3.8 System Configuration Considerations
None

3.3.9 Data Migration Considerations

The balances of Assets gross value and depreciation of opening assets to be uploaded in SAP for that the individual asset wise detail is required e.g its gross value, accumulated depreciation, cost centre, business area, plant, location etc.

3.3.10 Interface Considerations
None

3.3.11 Authorization and User Roles
Retirement of Asset