Capitalize borrowing costs to asset under construction u2013 IAS23

Dear experts,
According to IAS 23 we are required to calculate interest on capital invested in an asset under construction.
Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset form part of the cost of that asset. Where funds are borrowed specifically, costs eligible for capitalization are the actual costs incurred less any income earned on the temporary investment of such borrowings. Where funds are part of a general pool, the eligible amount is determined by applying a capitalization rate to the expenditure on that asset. The capitalization rate will be the weighted average of the borrowing costs applicable to the general pool. The amount of borrowing costs that an entity capitalizes during a period shall not exceed the amount of borrowing costs it incurred during that period.
Detail scenario
The construction of a qualifying asset is controlled by an investment measures that are managed as projects - WBS elements and settled to an asset under construction periodically. The calculated interest shall update only the determine depreciation area set on the interest profile (OPIB).
The borrowing operations are managed by money market transaction on TRM (Prod. Category 550 Interest rate instrument).
Using the interest calculation function (CJZ2 - Individual Processing or CJZ1 - Collective Processing) we encountered several problems/ restrictions.
1 u2013 When funds are borrowed specifically to a qualifying asset for example, an interest rate instrument as a money market transaction on TRM should be capitalized according to the actual incurred borrowing cost and not by a capitalization rate. How to assign the value to the WBS element?
2 u2013 When funds are part of a general pool, although we can calculate and update the effective interest rate for each borrowing transaction (TMEZ) how to determine the weighted average capitalization rate by company code and define it on the Reference Interest Rates (OBAC) to be used in the interest calculation?
3 u2013 Even if the capitalization rate is defined and updated manually in the reference interest rate for the interest calculation, how to limit the amount of borrowing costs that will be capitalized during the period? The calculated interest in period shall not exceed the amount of borrowing costs it incurred during that period.
Is there any other functionality to support interest calculation and capitalization of borrowing costs to asset under construction according to IAS23 requirements?
Please advice.

Hi,
The interest rates for capitalization and for appropriation can be collected in separate cost centers and apportioned to WBS . If you incur interests at the group level,then using accrual apportion the relevant portion to the respective C/Codes.
For arriving the weighted average i assume you take the planned interest.For restricting the planned to the actual ones use the " Budget Manager" functionality,give the actual value,set zero tolerance.This will help restricting to the actuals.
Hope this helps.
Regards
Ramesh

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Gather all cost for asset under construction

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Please tell me the way to gather all cost for asset under construction. You can detail as good as possible.
Thanks so much
Ngocpt

Dear Ngocpt,
Internal order is functionality from CO. U can use it for the purpose of collating all the cost. U can also do cost planning in internal orders. This helps u to analyse bet planned & actual cost.
Create IO thru KO01. Once created use it in ur transactions. In your case u can use it in posting any document to AUC.
Also as I mentioned in my previous post that IO can posted with real values and statis tical values. If you want to post statistical vales only then check the box statis tical order in control data.
Whenever passing an entry put ur IO number in "order" field.
Hope this is of use to u.
Regards,
Ajay

Creation of internal order (investment order- asset under construction)

I want to capture the cost of asset under construction through internal order (controlling) not throgh Investment Measure module. How i can do this.

Hi
It is the same flow as explained by AP above
If Investment management module is active, then on settlement i believe the AUC asset is automatically generated. Therefore you have to define an asset master and then include this asset in the settlement rule of the IO. Thus on settlement the cost in the IO would flow to the asset
Thank You,

Settlement from internal order to asset under construction

HI All,
I have allocated some labors hours cost from production cost centers to real order which is created for allocating the internal cost to asset under construction.
when i allocate the labor hours by using the "KB21N" it has used the secondary cost element that is "Internal activity allocation" cost element "1200002".
i have given the source cost element "1200002" which is created as "internal activity allocation" and in settlement cost elements folder i have given receiving category is "FXA" and selected by cost element check box. i selected required entry field in settlement profile and assigned in order type.
when i do the settlement to asset under construction from internal order it is showing bellow errow.
"Settlement by cost element not possible due to secondary cost element
Message no. KD553
Diagnosis
You want to settle the secondary cost element 1200002 by cost element to an asset or G/L account, which is not allowed.
Procedure
Extend your allocation structure R3, so that secondary cost elements are not settled by cost element, but with a settlement cost element."
please let me know the problem and where i did mistake. give me the solution
thanks in advance
Mr.Rao

HI,
in your allocation structure R3 you entered in the view "Settlement cost element" that settlement receiver categoy FXA receives values "by cost element". This is only possible for primary cost elements. For internal activities do not tick "by cost element" but use a settlement cost element with cost element category "22".
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Capitalization of Assets under construction

Hi Gurus,
Can anyone assist with the procedure and considerations for the capitalization of assets under construction?
Regards

Hi,
To Capitalize AUC go to T.code : AIAB then define settlement rule then go to AIBU and Settled AUC cost to main Assets.
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Javed

WBS Elements and Asset Under Constructions have different Cost Centers

Hello Experts,
We have created a WBS element in one of the projects.
As per standard process, when we create the WBS Element the Asset under construction is also getting created through the settlement rule within the WBS.
These assets should have the same Cost Center as the WBS has. However we are in a situation wherein the Cost Center in the asset under construction is different than the Cost Center in the WBS.
I have checked the settings like automatic account assignment, etc but all settings look correct.
Can you please explain first what could be the reason for such a difference between Cost Centers in WBS and AuC's and what is the solution to avoid it in future?
Thanks in advance
Leena

Thanks for your replies...
@ Alex - There is no Investment Programme ID maintained for this WBS in question since there is no IM for this project.
@ Abdul - Please elaborate more on Validation and Substitution.
Regards,
Leena.

Assets Under Construction

Hello can any one advice on this issue ?
My client wants to have an AUC but he is procuring the Asset and other incidental costs through PO and need to also have to capture the Duties at the same time but the Asset is not caplitalized in the books instead it should be in Capital Work In Progress.Later on he wants to capitalize the Assets from Transferring from AUC to final asset then only this time it should reflect in books.
Hoe can I make these settings in SAP ? Is it possible ? then How?

Hi Edukondalu,
Yes. its possible to define Assets under construction. You can define a specific Asset class that would have defined as AUC (No depreciation keys etc).
And you can create AUC asset master first and assign to POs. After incurring all expenditure under the AUC assets, you can capitalize the expenditure to Main Asset using transaction AIAB & AIBU
Hope this helps.
Cheers,
Som

Settlement of WBS element down payments to an asset under constructions

The down payment (of the transactions tcode F-47 and tcode F-110), are
always settlement wbs element (tcode CJ88), we do not want to post down
payments to the receiving asset under construction (transaction type
180 or 181).
In the down payments are always taken into account in the settlement to
an asset. The settlement of the down payment is the actual reason for
the previous update of down payments in FI (Transaction type group
15). Furthermore, the settlement of down payments to assets should
not be capitalize.

When you search on this forum try to put Date range "ALL" to get more results. Please read below threads and you will get the solution.
MIRO:Transaction in area 15 contradicts the net book value rule
Transaction in area 01 contradicts the NBV
Looks like you have a negative balance in your WBS which you are trying to settle to FA.

New Depreciation Area in Asset Master Data, for assets under construction.

Hi,
The issue is relating to New Depreciation area. We have created new Depreciation area as 80=IFRS. We had followed three steps
1. Create Depreciation area via OADB.
2. Activate Depreciation area via OAYZ.
3. Automatic opening of new depreciation are via AFBN and program RAFABNEW :-
3.1 u2013 Indicator: Leave values initial = ticked. Set this indicator if you want to open the newly created depreciation area without any values i.e. blank.
In this we have find that the old assets value has been copied. But when we are doing internal order settlement through KO88 i.e. from pre-cap to AUC we are not finding new Depreciation area 80=IFRS in AUC. We had checked in AW01N.
Letu2019s assume that creating a new deprecation area is normally not required since these assets are not depreciated. But During the final settlement, the new depreciation area should also automatically supplied with values from the reference depreciation area from the AUC(assets under construction) in the completed assets. But we doesnu2019t find any values of in Dep Key = 80 IFRS for final assets.
In Assets Class of AUC we had used Investmnet Measure as Status of AUC.
Kindly provide solution for the same.
Nikhil

Check Transfer Variant 5 (under Transactions->Intercompany Asset Transfers->Automatic Intercompany Asset Transfers->Define Transfer Variants):
5     Investment measure settlement
Your Transfer Method is most likely 1 now (without transfer to dependant areas), change it to:
4     Gross method with transfer of values to dependent areas
This should help.

Settlement of an Internal Order to Asset Under Construction

We are running SAP 4.7 and Iam trying to settle an Internal order to AUC and I get the following error
You cannot use this transaction type to post to this asset
Message no. AA834
Diagnosis
The transaction type entered belongs to transaction type group 15. According to the specifications for this transaction type group, posting with transactions types belonging to this group are only allowed in specific asset classes (for example, asset classes for assets under construction).
The asset to which you are posting belongs to class 18000 (chart of depreciation SEEF). You cannot post to this class using the transaction type you have entered.
Procedure
Check the asset number entered. You may want to allow posting with this transaction type group for the asset class of the asset.
**Please take note that the costs which have come on the internal oder are through GR( Goods receipt) and not down payment. Also note that last month, the order settled without any problems!**

Hi,
thanks for your answer.
I want to do that because of some french tax rules.
These rules say that goods, hours or services produced internally for the contruction of an asset can be "delivered" to itself.
So you can register output tax based on the value produced but you have also to register input tax for the same amount.
Finally the balance for VAT amount is 0.
I was interested to know if that was possible to automize. If not, there is still the possibility to make a separate postings at month end or year end.
Best Regards

Down payments for Asset Under Construction

Hi Experts,
Urgent!
My client paying advances to vendors, thru TC-F-48.
Previously there is no PO requirement ,now asper client requirement I put PO fild as requirement in posting key 29.
1)There is no problem for payment to vendors -for Raw materials.
2)while paying advance to vendors - for Asset Under Construction, system showing error.
*Error is:
Contact your system administrator (table error)
Message no. AA866
Diagnosis
No account has been entered for posting down payments in area 01 under the account assignment key 4800 (chart of accounts FTL).
Procedure
Enter the account using the Customizing menu.
Pls Reply frinds.
Regards
vinod

Hi Vinod,
I hope that you are following Valuated goods receipt concept.
Valuated goods receipt: Asset will be debited at the time of goods receipt
Non valuated good receipt: Asset will be debited at the time of invoice receipt
If you follow valuated goods receipt concept, then at the time of making down payment, AUC should not be debited (whatever the value date/ capitalization date be). Please refer SAP note number 310368 (valuated goods receipt paragraph) for reference. In that they have clearly mentioned the steps to make down payment against asset under construction Purchase Order without debiting to AUC and without any error message. You have to make F5 378 message number from error message to warning message and in posting key 29 and 39, you have to supress the asset related fields. If you have done the above settings, then system will not show any error message to update G/L account in AO90 transaction code for the Acquisition: down payments and Down payment clearing - 2nd and 4th field or for AUC related fields.
Hope this helps. Assign points if useful.
Regards
Dwarak.

Settlement of Asset Under construction

Hi Folks
Can someone please explain an overview of settling Assets under construction. I am having some issues with AUC. The actual value of asset is being taken from AUC, not from final asset. Any kind of assistance will be highly appreciated.

Hi,
The Below are some important Steps.
1. T.code KO88 - Here you settle Expences to Settlement cost Elements via internal Order or Cost Centers. Give the Settlement rule and by tht Expences will be distrubuted or settled to SCE..
2. In AIAB T.code -Here Distrubution is done from Settlement Cost Elements to AUC, Here settlement rule is defined as such.
3. In AIBU T.code - Here Settlement if Cost from AUC to Actual Asst is Done.
after AIBU Transcation is Processed, you can directly run the Deprecation for tht Asset.
Hope the above would Help in Understanding the Concept of AUC Settlements.
Thanks
Goutam

Steps for completing Asset under Construction

hi,
i have created the AUC asset class with line settlement checked.
will somebody be kind enough to show me the futher steps involved in customization along with postings and settlement procedure....
regards
sayeed

Hi,
You can manage the asset under construction in the system in two different ways, depending on the types of functions that you need. The asset under construction can be either a normal asset record, or a master record with line item management. As a result, the transfer from the asset under construction to completed fixed assets can be handled in one of two ways:
·        Summary transfer from a normal asset master record to the receiver assets (transaction type 348/349)
·        Line item settlement of an asset under construction that has line item management
The Investment Management (IM) component is recommended for handling large-scale capital investments. Using the IM component, you can manage a capital investment in parallel: for financial accounting purposes as an asset under construction, and for controlling purposes as an internal order or project. For more information, see the documentation for the Investment Management component.
Assets under Construction Without Line Item Management
The procedure corresponds to the procedure for the transfer between two assets within the same company code (see Posting the Splitting or Moving of an Asset). Before carrying out a full transfer of an asset under construction, you have to reverse any down payments that were posted in the current fiscal year. Down payments are ignored for a partial transfer.
Special transaction types for the transfer of assets under construction allow for transfers to be displayed in the asset history sheet as acquisitions to fixed assets.
Assets under Construction with Line Item Management
In the FI-AA component, you can accumulate costs under purely technical aspects in an asset under construction. You do not need to consider the later creation of fixed assets at this point. During the construction phase, you can accumulate all acquisitions for an investment in a single asset. These acquisitions include
·        External activity (acquisition from vendor)
·        Internal activity (internal order)
·        Stock material (withdrawal from warehouse)
in a single asset. When using this 'collective management' of assets under construction, it is possible to manage the individual acquisitions as open items over the course of several fiscal years. At completion, the line items must be cleared and then distributed to the various receivers. The system activates open item management when an asset under construction is created, if you set the corresponding indicator in the asset class. In addition, you have to assign a settlement profile to the company codes involved, in Customizing for Asset Accounting, in order for the line item settlement to work (see Define Settlement Profile in the Implementation Guide). The main function of the settlement profile is to specify the allowed receivers (such as, assets or cost centers).
Hope this helps you. Let me know if you need any other information.
Rgds
Manish

Accounting object to Asset under construction?

Please,
Question: Is it necessary to set an accounting object (ACSET) to asset under construction?
(I think we should define an internal order)
Thank you

hi Naej ,
For Auc Assets Account assignment object is not required to create.
Because when purchase any goods and Services automatically system captures profit center through document splitting.
For eX : Service Entry with internal order. Internal order may contain CC or PC.
If internal order contains CC or PC system derives
ExP             a/c DR              10000
                To              GR/IR              acccount           10000
Aftter that we are settling EXp from Order to AUC
AUC     account            dr        10000
         to        ExP        account        10000
System derives cost center / profit center from IO   to AUC.
Main Asset settlement :
Main Asset           DR         10000
         to     AUC accont          10000
Because of these reasons AUC is not Requried CO Assignment objects.

Migrating Assets Under Construction?

Hi all,
A customer has many fixed assets that are currently under construction during a Go Live implementation. I realize ByD uses projects as a bit of a work around for handling assets under construction in the system, but what is the best way to handle the data-migration of these assets under construction in ByD? (along with the expenses/etc associated with these assets under construction)?
thanks a lot,
-Ben

Hi Gopal,
My understanding is that project balances cannot be migrated in ByD. We have been advised to manually key in all existing projects with budgets, sales orders etc. We are not sure what to do with existing project costs and invoices as historical data cannot be migrated either.
Since you suggested migrating the 'Assets under construction' as projects, I wonder if that is a special category? I was planning on using 'Direct Cost Project' process variant as suggested in the ByD help centre for 'Assets Under Construction'
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Capitalize borrowing costs to asset under construction u2013 IAS23

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