Set up depreciation areas in Asset Accounting in S/4HANA Cloud Private Edition with UPA

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Purpose

In Universal Parallel Accounting (UPA), Asset Accounting (AA) has almost everything redesigned, from database tables to the user interfaces, from configurations, master data to depreciation calculation,  and from overall architecture to the technical implementation. 

The way to set up ledgers and depreciation areas is a part of those big changes. This article discusses how to set it up in Asset Accounting in S/4HANA Cloud Private Edition with UPA. It also describes a couple of common mistakes that can be easily made by users who are coming from the non-UPA.

Depreciation Areas in a Non-UPA System

Before UPA was introduced, it was a complex task to set up the depreciation areas in AA. Quite often, in a non-UPA system, you will see the following setup.

However, from an accountant point of view, this setup is confusing. For example, what kind of accounting principles can be called 'TAX' accounting principle? Which country is using an accounting principle called 'LOCAL'?

Ledgers and Accounting Principles in UPA

Concept

Accounting principles are rules to govern how companies record and report their financial data. The most famous accounting principles is International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). In addition, there are local accounting principles, for example, the United States Generally Accepted Accounting Principles (US GAAP) or German Commercial Code (Handelsgesetzbuch, HGB).

Ledgers build the basis for reporting and financial statements in Accounting by storing related transaction data and journal entries. For this reason, all posting-relevant configuration settings for a company code, such as the accounting principles, currency settings, fiscal year variants (FYVs), and posting periods, must be linked to a specific ledger. 

Regardless UPA or non-UPA, it is always recommended to assign the leading ledger to the accounting principle of the corparate group, while in parallel, the non-leading ledgers for the local accounting principles.

In practice, there is a commonly made mistake: to create an accounting principle called 'LOCA' and assign ledgers to it. Perhaps the users may want to clone what they did in the past (non-UPA) into the UPA system. But this is wrong. You must not use a generic local accounting principle for all country and assign it to the local ledger. Always create a dedicated accounting principle per country. Below is an example to show you how to do it in UPA.

Set Up of Ledgers and Accounting Principles

The setup of ledger and accounting principle is done in the t-code FINSC_LEDGER. In order to make it easier to explain the concept, we start the example in an Excel file, with a flat the structure as shown in the screenshot below, then followed by the screenshots made in the system.

This example follows the SAP recommendation to manage the corporate valuation (e.g. IFRS) in the leading ledger 0L. In t-code FINSC_LEDGER, once you enter 'IFRS' at the ledger 0L, you will have it inheritted into all company codes that are assigned to 0L automatically. 

The ledger 2L is used for local accounting principles. So, leave 'Accounting Principle' as blank on ledger 2L. In all company codes that are assigned to 2L, enter the right accounting principles for those individual company codes.

In UPA, Asset Accounting  (AA) has a in-depth integration with General Ledger (G/L) Accounting. All currency types are set up in G/L and managed by G/L. You don't have to create a separate depreciation area for each currency type. 

With this fundamental setup in G/L, you can step into AA configurations. 

Depreciation Areas and Valuation Views in UPA

Concept

Depreciation areas in AA play the same role as ledgers do in G/L, but with a more fine-granular structure than a ledger.

'Valuation View' does not exist in AA with non-UPA. However, in UPA, this is one of the most important concepts. It is designed to map valuations in accordance with different valuation rules, for example, according to local commercial or tax laws, or according to international accounting principles. 

Valuation views can be pre-delivered (To learn more about it, see the Best Practice Content section under Miscellaneous Topics at the end of this article). But if you want to define your own valuation views, it is always recommended to define a dedicated valuation view per country. Do not resue them in a generic way.

Setup of Valuation Views

T-code FAACFG contains all configurations of AA. This artical mainly focuses on the configuration under the node 'Basic Settings for Valuation'.

It is recommended to define exact one valuation view for the corporate accounting principle, e.g. 0IFRS_0032 for IFRS below.

For each local accounting principle, create a set of valuation views for it. For example, 0DE_0001 and 0DE_0015 below for German accounting principle. The assignment is done in the configuration node 'Assign Valuation View to Accounting Principle'.  The property 'Posting in G/L', a.k.a. Posting Type, plays an important role in the posting. See the next chapter for more details.

Valuation views have properties to decide the rules for depreciation calculation and asset transactions. For example, both 0DE_0001 and 0DE_0015 have:

• Net Book Value (NBV) set to '*'.
  This means negative NBV is allowed in the depreciation areas assigned to these valuation views.
• Revaluation set to '*'.
  That means corresponding depreciation areas support revaluation. Those depreciation areas and the corresponding ledgers are selectable in Post Asset Revaluation app (or t-code ABAWL). ➡️ In another word, if you cannot select any ledger or deprecation area there, please check out the settings here in the corresponding valuation views. This is a commonly made mistake as well.

Setup of Depreciation Areas

Now it is the time to create depreciation areas for your company codes. Each depreciation area must be assigned to a valuation view, and thus linked to the corresponding ledger.

In UPA, it is a lot more easier to set up depreciation areas, once you have configured valuation views right. You don't have to create a separate depreciation area for every currency type. Since currency types are configured in G/L at ledger level, every depreciation area manages all currency types that are defined in the corresponding ledger. This is a significant improvement in UPA.

⚠️Important to know:

• Since AA has a deep integration with G/L, it is not allowed to have a ledger defined in G/L but not used in AA. For example, if 2L is not used in AA, system will report an error message.
• The property 'Posting in G/L' of valuation view 0DE_0001 is '1 - Area Posts in Real Time'. Therefore, for the depreciation area assigned to this valuation view (depreciation area 32), system save line items with the corresponding ledger, i.e. 2L, in this example.
• The property 'Posting in G/L' of valuation view 0DE_0015 is '0 - Area Does Not Post'. Thus, line-items for the depreciation area 15 are saved with the technical ledger of 2L in ACDOCA. (You can find the ID of the techincal ledger in the database table FINS_TECH_LEDGER)

⚠️Something more about derived areas, a.k.a. virtual area in non-UPA.

• In non-UPA, a virtual area, which is called 'Derived Area' in UPA now, can calculate values from areas belonging to different ledgers. This is not allowed anymore in UPA, where a derived area can only be built on depreciation areas from the same ledger.
• In non-UPA, nothing from a virtual area is stored into database. Everything is calculated on-the-fly. However, in UPA, to make them accessible in Fiori analytics reports, AA designs it differently. If a derived area is included in an asset:
  1. This derived area is also stored in the asset master record.
  2. If 'Posting in G/L' in the corresponding valuation view is '0 - Area Does Not Post', line-items for this derived area are stored in the corresponding technical ledger in ACDOCA, . This is similar to what has been described in the last bullet-point of 'Important to know''.
  3. If 'Posting in G/L' is '4', line-items for this derived area are posted to the normal ledger. For example, in a France company code, ledger 2L is configured for local GAAP 'FRAP'. The line items for derived area 93 are posted to the ledger 2L, but not the corresponding technical ledger of 2L.
     

Is Everything Correct?

You are almost there. But how to know if everything has been set up correctly? AA has provided a nice tool for this purpose. That is the one being highlighted below.

It provides a lot of checks. For the configurations described in this article, just turn on the first option 'Basic Settings for Valuation'. This tool will tell you if there is still anything missing or wrong in the configuration.

Miscellaneous Topics

Group Valuation Ledger

To set up a dedicated ledger for group valuation in addition, create a ledger in FINSC_LEDGER (e.g. 4G), and choose '1 Group Valuation'  for it, as shown below.

Next, in the company codes that are assigned to 4G, enter the currency types that are defined for group valuation, e.g. 11, 31, etc. You should have defined these currency types in the node 'Currency Type' of FINSC_LEDGER, beforehand.

Best Practice Content

All the discussions in this article start with valuation views. How should those valuation views be created properly? Referring to the best practice content is the best way.

All configuration tables in AA have their best practice (default) content delivered by SAP in each release. You can choose which client should be used for those default content. After activating the best practice content, you will see all those default configuration in the client you have provided, including everything being mentioned in this article.

This is a separate topic and cannot be covered in this article. Please refer to this page for more details.

Summary

This article discusses about how to set up accounting principles, ledgers and depreciation areas in UPA, with basic examples.

It is also worth mentioning that AA groups depreciation keys by accounting principles. So corporate roll-out becomes easier than before. You may check out the relevant configuration in the node: FAACFG =>Basic Settings for Valuation=>Make Cross-Company Code FI-AA Settings per Accounting Principle.