Please elaborate me the mechanism of Asset Retirement

Question

Hi,
Please elaborate me the mechanism of Asset Retirement
Thanks

Answer 1

Hi,
Please go thru the following document if it is helpful.
Asset Retirement:
Purpose
Asset retirement is the removal of an asset or part of an asset from the asset portfolio. This removal of an asset (or part of an asset) is posted from a bookkeeping perspective as an asset retirement. Depending on organizational considerations, or the business transaction which leads to the retirement, you can distinguish the following types of retirement:
An asset is sold, resulting in revenue being earned. The sale is posted with a customer.
An asset is sold, resulting in revenue being earned. The sale is posted against a clearing account.
An asset has to be scrapped, with no revenue earned.
An asset is sold to an affiliated company (refer to Manual Posting of Intercompany Asset Transfer/Retirement)
Process Flow
There are transactions and transaction types in the system for these different retirement types.
Asset Retirement
Asset Sale with Customer
The system enables you to post the entry to Accounts Receivable, the revenue posting and the asset retirement in one step. In this posting transaction, you have to post the revenue (debit A/R, credit revenue from asset sale) first, and then post the asset retirement. An indicator in the posting transaction specifies that the system posts the asset retirement after the revenue posting.
The prerequisite for this is that the sales revenue account in Financial Accounting, to which the revenue should be posted, has a field status variant in its master data in which the Asset retirement field (category Asset Accounting) is defined as a required or optional entry field. You define the field status variant in Customizing for Financial Accounting (Financial Accounting Global Settings ® Document ® Line Item ® Controls).
Posting of Gain or Loss
When you use the standard transaction types, the system automatically creates a gain posting or a loss posting, as well as a revenue clearing entry, in addition to the asset and accumulated depreciation correction postings. This gain/loss posting, as well as the revenue posting, are not dependent on the transaction type. The automatic creation of these postings is controlled by the Gain/loss from retirement indicator in the definition of the transaction type. You can also choose not to set this indicator, in which case you have to enter the postings manually.
In an exceptional situation, an integrated asset retirement with revenue can also be posted although the asset does not have APC in the master depreciation area.
For more information on ways of posting gain and loss, see Posting Gain/Loss.
Retirement Without Revenue
A retirement without revenue is the removal of an asset from the asset portfolio without any revenue, for example, by scrapping. When you use this posting option, the system does not create revenue and gain/loss postings. Instead it creates a Loss from an asset retirement without revenue posting in the amount of the net book value being retired.
Complete/Partial Retirement
An asset retirement can refer to an entire fixed asset (complete retirement) or part of a fixed asset (partial retirement). In both cases, the system automatically determines, using the asset retirement dates entered, the amounts to be charged off for each depreciation area. You can initiate the partial retirement of a fixed asset by entering one of the following:
The amount of the acquisition and production costs being retired
A percentage rate
A quantity
When you enter the amount of APC that is being retired, the system determines the percentage to be retired from the asset using the first depreciation area in which posting is to take place. It determines the percentage amount of APC being retired in that area, and uses the same percentage for other areas. You can enter a quantity, provided that you have not specified a retirement amount or percentage rate. The system interprets the quantity as a ratio to the total quantity of the asset and thereby determines the asset retirement percentage rate. If necessary, you can also manually correct the retirement amounts that were calculated by the system in individual depreciation areas. The system then recalculates the retirement amounts for that area, and any areas that are dependent on that area.
The asset value date of the retirement is recorded in the asset master record. You cannot post any transactions with a value date before the value date of the last retirement. If you nevertheless need to post such a transaction, you must first reverse all retirements that lie after the value date of the belated posting. After posting the belated transaction, you can then re-post the retirements.
Transaction Type (Prior-Year Acquisitions/Current-Year Acquisitions)
Make sure that you select the correct transaction type for both partial and complete retirement. For the complete retirement of a fixed asset acquired in previous years, always select a transaction type intended for prior-year acquisitions. A partial retirement can always relate either to prior-year acquisitions or to current-year acquisitions.
The complete retirement of a fixed asset is only possible if all transactions to the asset were posted with a value date before the asset value date of asset retirement. You must clear or reverse down payments and investment support measures, which are in the same posting year as the retirement, before you post the complete retirement.
Prior-year asset acquisitions and current-year acquisitions are shown separately from one another in the document.
Proportional Value Adjustments
Based on the value date and period control, the system automatically determines the reference period for the retirement. The system automatically determines any depreciation (value adjustments) that is applicable to the part of the asset being retired, up to the reference period (retirement). The system automatically retires this depreciation at the time of the retirement transaction. This procedure guarantees that the percentage of the book value that is retired is identical with the percentage of the acquisition and production costs that is retired.
Graphic: Determining Proportional Value Adjustments
The system automatically posts the proportional value adjustments retired during an asset retirement. You can specify special transaction types for this automatic posting. You enter these transaction types in the Customizing definition of the retirement or transfer transaction types (Value adjustments function). These special transaction types for the proportional value adjustments are particularly important for group consolidations, so that the individual transaction can be identified as retirement of transfer.
The standard transaction types delivered by SAP are already defined in this way. The system uses the transaction type 290 for proportional values with retirements. For transfers it uses transaction types 390/395 (transfer retirement/acquisition).
Retirement of Low Value Assets
There are special considerations for the retirement of low value assets (LVAs). It is usually necessary to simplify the business transactions involved, due to the large number of assets that are being retired. It is not necessary to actually post the retirement of low value assets in order for the assets transactions to be displayed correctly in the asset history sheet. It is possible to simulate the retirements of low value assets during a time period you specify. Enter the LVA asset classes and the simulation time period in the initial screen of the asset history sheet (see Asset History Sheet).
If you want to actually post the retirement of low value assets, use the usual procedure for asset retirements.
Retiring Several Asset Subnumbers Simultaneously
The system enables you to post the complete retirement of several subnumbers of a fixed asset in one step (generic entry using an asterisk (*) in the subnumber field). The system performs asset postings and value adjustment postings for each sub-number.
Sales revenue is proportionally allocated to the individual sub-numbers according to their acquisition value (including revaluation).
Retirement of Assets with Investment Support
For information on the special concerns involved when retiring assets with investment support, see Investment Support on the Liabilities Side and Investment Support Managed on the Assets Side .
Retirement Costs
It is possible to enter the costs of the retirement (for example, removal costs) for statistical purposes during the retirement posting. The standard report for asset retirements (Information System) then displays these costs in a special field. Note that gain/loss and retirement costs are shown separately in the report. In addition, the retirement costs are not automatically transferred to cost accounting.
Mass Retirement
When an enterprise sells a large portion of its fixed assets (such as a plant or a building), it is necessary to post the retirement of all the individual assets which make up the whole. Since the number of affected assets can be very large, the Asset Accounting (FI-AA) component makes it possible to make the necessary postings using mass processing. For more information, see Mass Retirement.
Thanks,
Prithwiraj.