Depreciation is a non cash expense that is accounted to write down the value of an asset over its useful life. In SAP Depreciation process is used to allocate the cost of a fixed asset as an expense in the years when the asset helps to generate revenue. Its accounted because of the matching principle. As land has an unlimited life, it is not depreciated.
In this article we will show you how written down value method of calculating depreciation works in SAP.
Method of Calculating Depreciation
Globally there are two methods which are generally used for depreciation calculation:
- Straight Line Method
- Written Down value Method
Written Down Value method
Under written down value ( WDV ) method large amount of depreciation is charged in the early years of acquisition of assets and then gradually decreases. Written Down Value is ( WDV ) justified with a notion that some of the assets are more efficient in the earlier year of their life. As the depreciation is calculated each year the amount is deducted from that year’s asset value to calculate the asset value for the next year.
That means, it is charged on the reduced balance of asset. SAP has some standard delivered Written Down Value method ( WDV ) depreciation key which calculates depreciation for the Asset assigned to the asset class attached to the Written Down Value ( WDV ) depreciation key.
Below are the steps that can be followed to account depreciation under written down value method in SAP.
Steps for configuration of depreciation areas in asset class
SAP Path: Financial Accounting > Asset Accounting > Valuation > Determine Depreciation areas in Asset class
SAP Transaction code: OAYZ
Under your asset class select the depreciation area and then assign depreciation key for written down value of the assets. DG25 is a standard depreciation key for written down method of depreciation calculation.
Create an asset in SAP by using the asset class
SAP Transaction Code for asset Creation: AS01
Acquire an asset with the T code F-90
Under this step you purchase an asset with a value.
After a posting of a specific amount as the value of asset you are ready to run your depreciation for the asset by using T Code: AFAB
Enter the following required fields;
Fiscal year for which you want to calculate depreciation
Posting period to which you want to post the depreciation
Then Go to Program => Execute in Background
Check the depreciation run
SAP Transaction Code: AW01N