Before understanding asset class let's understand how depreciation works and various other terminologies involved in asset accounting:
Consider an example, asset (BIKE) is purchased for 150000 with useful life 10 year. Asset is to be depreciated using straight line depreciation method.
Below accounting document for depreciation of asset will be posted every month in account books.
Depreciation account 1250
CR Accumulated depreciation account 1250
This accounting document gets posted automatically in sap once depreciation run is performed in sap. Depreciation run is performed every month end in sap using T code AFAB which we will cover in detail at later stage.
As of now, the question is how system calculates depreciation amount and from where system picks GL account for depreciation account and accumulated depreciation account.
Depreciation amount calculation
Total initial cost = 150000
Total life 10 year = 120 months
Depreciation method is straight line, hence depreciation per month= 150000/ 120 = 1250
There can be various other depreciation methods but in our example we have taken straight line depreciation or linear depreciation.
Hence depreciation amount calculation depends upon APC (acquisition and production cost), useful life and depreciation method.
Let’s understand below terminologies which are going to be used in asset accounting.
APC (Acquisition & Production cost):
Total cost which is paid to get the asset. Asset is either produced in-house or purchased externally or may include a mix of both. Whatever is the total cost incurred to get the asset is referred as APC, it may include vendor bill amount, freight cost, custom charges, installation cost etc.
Life over which asset is supposed to be used. At the end of useful life asset is supposed to be left with zero value or scrap value. Useful life of asset is decided by guidelines provided in respective country’s accounting principles. Hence different accounting principle may suggest different useful life for the same asset as per their respective accounting priniciples.
Depreciation key is basically method of depreciation. There can be various method of depreciation like linear depreciation, declining balance method, maximum amount method, multilevel method etc.
An asset is depreciated using suitable depreciation method or in other words an asset is assigned suitable depreciation key.
Account determination key:
There are many transactions done with asset. Depreciation is just one of the transactions.
Whenever any transaction is performed with asset, corresponding accounting document gets generated automatically. Sap picks GL account for posting accounting document by using account key. Account key holds the information about which GL account is to be picked for what transaction.
Account key is assigned to asset.
Understanding asset class
Assets which have common characteristics like same useful life, same method of depreciation and uses same GL account for posting accounting document are said to belong to same asset class. Hence asset class is grouping of assets which have same common characteristics.
You may have different bikes: CBZ, unicorn, FZ Honda, Pulsar bajaj, Enfield, etc
You may have different cars: i10, Ertiga, Honda city etc
You may have different machines: Machine 1, Machine 2, Machine 3, Machine 4 etc
You may have different laptops: acer, dell, hp, Lenovo etc
You may have purchased each asset at different prices hence each asset may have different APC value.
Assets with common characteristics belong to same asset class.
What is the use of asset class in asset accounting?
Asset of similar nature are created under same class. Asset inherits below properties from asset class under which asset is created:
Useful life is maintained in asset class. When asset is created, useful life of asset is inherited from asset class. Inherited useful life can be changed manually in individual asset master.
Asset inherits depreciation key from asset class. Depreciation key can be changed in individual asset manually.
When you try to create an asset, you will come across various fields in asset master which can be mandatory, optional or suppressed. This filed status setting is captured in screen layout. Screen layout is assigned to asset class. Hence when an asset is created, screen layout is picked from asset class under which the asset is being created.
Account determination key:
Account determination key is basically used for telling the software which GL account to use for posting accounting document for the asset transaction. Account key is assigned to asset class. Asset created under asset class inherit account key.
Asset class is assigned a number range. When asset is created under the asset class, asset is created with a number belonging to asset class in sequential order.
Since asset inherits properties from asset class. Hence by maintaining properties for asset class we are saving our time & effort in maintaining for each & every asset individually.