FI-AA works with the Chart of accounts assigned to the company code in FI.

So first requirement will be the

company code must created in FI. Then this company code will be extended to AA. Each company code uses
one chart of accouts andone chart of depreciation.
So for FI-AA company code from FI side requirement will be Chart of accounts and from AA side Chart of
depreciation.
The chart of depreciation has different depreciation areas for specific type of valuation (for example, book
depreciation, cost acct. depreciation or tax depreciation). FI-AA integrated through Account Determination.
Account Determination has set of GL for posting APC vlaue, Accum. depreciation, depreciation expenses, Gain
or Loss on retirment or sale of assets etc. Account Determination is assiged to Asset Class. Assets are created
using asset class.
Note : Same chart of account can be used by many company and same chart of depreciation also can be used
by many company.
Regards
Finance Accounting Asset Accounting
Asset Accounting deals with all the fixed asset of the company and provides all the
transaction details about fixed assets. The asset accounting module of Finance
Accounting works closely with other modules like SAP MM, SAP Plant
Management, EWM, etc.
Common T-codes used for Asset Accounting −

 AT01
 AT03
 AUN0
 ASEM
Example − When a company purchases an item that can be considered as an
asset, the details will be passed to Asset accounting module from the SAP MM
module.
or

The FI-Asset Accounting (FI-AA) component is used for managing the fixed assets
in FI system. In Financial Accounting, it serves as a subsidiary ledger to the General
Ledger, providing detailed information on transactions involving fixed assets.
 Integration with other components − As a result of the integration in the SAP
system, Asset Accounting (FI-AA) transfers data directly to and from other SAP
components.

Example
It is possible to post from the Materials Management (MM) component directly to FI-
AA. When an asset is purchased or produced in-house, you can directly post the
invoice receipt or goods receipt, or the withdrawal from the warehouse, to assets in
the "Asset Accounting" component.
At the same time, you can pass on depreciation and interest directly to the
"Financial Accounting" (FI) and "Controlling" (CO) components. From the "Plant
Maintenance" (PM) component, you can settle maintenance activities that require
capitalization to assets.

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Financial Accounting

Fixed Asset Accounting

Table of Contents [show]
WHAT ARE FIXED ASSETS?
Fixed assets are tangible assets purchased for the supply of services or goods, use
in the process of production, letting out on rent to third parties or for using for
administrative purposes. They are bought for usage for more than
one accounting year. They are generally referred to as property, plant, and
equipment (PP&E) and are referred to as Capital assets. Now let us understand
examples of Fixed Assets as well as Fixed Asset Accounting.
EXAMPLES OF FIXED ASSETS
 Machinery
 Furniture
 Land and building
 Computer and its equipment’s
 Machinery
 Vehicles etc.

Chart of Depreciation
Definition
Charts of depreciation are used in order to manage various legal requirements for the depreciation
and valuation of assets. These charts of depreciation are usually country-specific and are defined
independently of the other organizational units. A chart of depreciation, for example, can be used for
all the company codes in a given country (refer to Company Code Assignment ).

Country-Specific Charts of Depreciation

In the simplest scenario, all of your company codes are in the same country and are subject to the
same legal requirements for asset valuation, meaning that you only need one chart of depreciation.

Structure
The chart of depreciation consists of the following parts:

 In general, you are required to calculate values for assets for different needs, both internal
and external (such as book depreciation and cost depreciation). Therefore, the Asset
Accounting component enables you to manage values for assets in parallel in up to
99 depreciation areas. The chart of depreciation, therefore, is a directory of depreciation
areas organized according to business management requirements. You define the
characteristics, and thereby the significance, of the individual depreciation areas in each chart
of depreciation. A depreciation area is always assigned to only one chart of depreciation.
  You flexibly define the keys for the automatic depreciation of assets in each chart of
depreciation. They are based on elements for calculation (calculation methods, period
controls, and so on) that are available client-wide.

You can change and add to the standard calculation keys that are delivered with the system
(refer to Depreciation )

 There are specific objects in the chart of depreciation for special calculations of asset
values (for example, investment support keys for investment support - refer to Special
Valuation ).

Use
SAP supplies typical reference charts of depreciation for each country. They have different
depreciation areas and depreciation keys depending on that country’s specific requirements. You
cannot use these charts of depreciation directly. You must create your own chart of depreciation by
copying the reference chart of depreciation. Delete any depreciation areas that are not needed.

You can document the meaning of any chart of depreciation you set up in the system by writing a
description for it.

The graphic below shows the standard chart of depreciation for the USA.

Integration

Company Code/Chart of Depreciation

You have to assign each company code defined in Asset Accounting to exactly one chart of
depreciation. In the interests of keeping asset values uniform in your company, you should restrict the
number of charts of depreciation used to as few as possible. Company codes in countries with the
same valuation rules or company codes of a certain industry sector generally use the same chart of
depreciation.

Chart of Accounts/Chart of Depreciation

The assignment of a company code to a chart of accounts is independent from its assignment to a
chart of depreciation. This means that several company codes can use the same chart of accounts,
although they have different charts of depreciation (and vice versa).
Chart of depreciation is nothing but a chart containing difference areas of depreciations like Book
depreciation, Tax depreciation, consolidated derpeciation, etc. Because we have to prepare our
statements as per Indian Companies Act (Book depreciation), Income Tax Act (Tax depreciation)

Chart of Depreciation defines the various depreciation areas and valuation methods for assets. In
SAP, they are defined for each country at client level and can be modified to suit the
requirements.
The various features of chart of depreciation are as under:
1. The chart of depreciation is a directory of depreciation areas organized according to business
management requirements.
2. The characteristics and significance of the individual depreciation area is defined in each chart
of depreciation. A depreciation area is always assigned to only one chart of depreciation.
3. Depreciation keys for automatic calculation of depreciation are also defined in chart of
depreciation. They are based on elements for calculation (calculation methods, period controls,
and so on) that are available client-wide.
4. There are specific objects in the chart of depreciation for special calculations of asset values
Each company code is assigned to on chart of depreciation.

What is Depreciation?
In accounting terms, depreciation is defined as the reduction of recorded cost of
a fixed asset in a systematic manner until the value of the asset becomes zero or
negligible.

An example of fixed assets are buildings, furniture, office equipment, machinery

etc.. A land is the only exception which cannot be depreciated as the value of land
appreciates with time.

Depreciation allows a portion of the cost of a fixed asset to the revenue generated by
the fixed asset. This is mandatory under the matching principle as revenues are
recorded with their associated expenses in the accounting period when the asset is
in use. This helps in getting a complete picture of the revenue generation
transaction.

An example of Depreciation – If a delivery truck is purchased a company with a

cost of Rs. 100,000 and the expected usage of the truck are 5 years, the business
might depreciate the asset under depreciation expense as Rs. 20,000 every year for
a period of 5 years.

How to calculate depreciation in small business?

There three methods commonly used to calculate depreciation. They are:

1. Straight line method

2. Unit of production method
3. Double-declining balance method

Three main inputs are required to calculate depreciation:

1. Useful life – this is the time period over which the organisation considers the fixed asset
to be productive. Beyond its useful life, the fixed asset is no longer cost-effective to
continue the operation of the asset.
2. Salvage value – Post the useful life of the fixed asset, the company may consider selling
it at a reduced amount. This is known as the salvage value of the asset.
3. The cost of the asset – this includes taxes, shipping, and preparation/setup expenses.

Unit of production method needs the number of units used during production. Let’s
take a look at each type of Depreciation method in detail.

Types of depreciation

1) Straight-line depreciation method

This is the simplest method of all. It involves simple allocation of an even rate of
depreciation every year over the useful life of the asset. The formula for straight line
depreciation is:

Annual Depreciation expense = (Asset cost – Residual Value) / Useful life of the
asset

Example – Suppose a manufacturing company purchases a machinery for Rs.

100,000 and the useful life of the machinery are 10 years and the residual value of
the machinery is Rs. 20,000
Annual Depreciation expense = (100,000-20,000) / 10 = Rs. 8,000
Thus the company can take Rs. 8000 as the depreciation expense every year over
the next ten years as shown in depreciation table below.

Year Original cost – Residual value Depreciation expense

1 Rs. 80000 Rs. 8000

2 Rs. 80000 Rs. 8000

3 Rs. 80000 Rs. 8000

4 Rs. 80000 Rs. 8000

5 Rs. 80000 Rs. 8000

6 Rs. 80000 Rs. 8000

7 Rs. 80000 Rs. 8000

8 Rs. 80000 Rs. 8000

9 Rs. 80000 Rs. 8000

10 Rs. 80000 Rs. 8000

2) Unit of Production method

This is a two-step process, unlike straight line method. Here, equal expense rates
are assigned to each unit produced. This assignment makes the method very useful
in assembly for production lines. Hence, the calculation is based on output capability
of the asset rather than the number of years.

The steps are:

Step 1: Calculate per unit depreciation:

Per unit Depreciation = (Asset cost – Residual value) / Useful life in units of
production
Step 2: Calculate the total depreciation of actual units produced:

Total Depreciation Expense = Per Unit Depreciation * Units Produced

Example: ABC company purchases a printing press to print flyers for Rs. 40,000
with a useful life of 1,80,000 units and residual value of Rs. 4000. It prints 4000
flyers.

Step 1: Per unit Depreciation = (40,000-4000)/180,000 = Rs. 0.2

Step 2: Total Depreciation expense = Rs. 0.2 * 4000 flyers = Rs. 800

So the total Depreciation expense is Rs. 800 which is accounted. Once the per unit
depreciation is found out, it can be applied to future output runs.

3) Double declining method

This is one of the two common methods a company uses to account for the
expenses of a fixed asset. This is an accelerated depreciation method. As the name
suggests, it counts expense twice as much as the book value of the asset every
year.

The formula is:

Depreciation = 2 * Straight line depreciation percent * book value at the beginning of

the accounting period

Book value = Cost of the asset – accumulated depreciation

Accumulated depreciation is the total depreciation of the fixed asset accumulated up

to a specified time.

Example: On April 1, 2012, company X purchased an equipment for Rs. 100,000.

This is expected to have 5 useful life years. The salvage value is Rs. 14,000.
Company X considers depreciation expense for the nearest whole month. Calculate
the depreciation expenses for 2012, 2013, 2014 using a declining balance method.

Useful life = 5

Straight line depreciation percent = 1/5 = 0.2 or 20% per year

Depreciation rate = 20% * 2 = 40% per year

Depreciation for the year 2012 = Rs. 100,000 * 40% * 9/12 = Rs. 30,000

Depreciation for the year 2013 = (Rs. 100,000-Rs. 30,000) * 40% * 12/12 = Rs.
28,000

Depreciation for the year 2014 = (Rs. 100,000 – Rs. 30,000 – Rs. 28,000) * 40% *
9/12 = Rs. 16,800

Depreciation table is shown below:

Book value at the Book value

Year Depreciation rate Depreciation Expense
beginning end of the

2012 Rs. 100,000 40% Rs. 30,000 * (1) Rs. 70,000

2013 Rs. 70,000 40% Rs. 28,000 * (2) Rs. 42,000

2014 Rs. 42,000 40% Rs. 16,800 * (3) Rs. 25,200

2015 Rs. 25,200 40% Rs. 10,080 * (4) Rs. 15,120

2016 Rs. 15,120 40% Rs. 1,120 * (5) Rs. 14,000

Depreciation for 2016 is Rs. 1,120 to keep the book value same as salvage value.

Rs. 15,120 – Rs. 14,000 = Rs. 1,120 (At this point the depreciation should stop).
Why should small businesses care to record depreciation?

So now we know the meaning of depreciation, the methods used to calculate them,
inputs required to calculate them and also we saw examples of how to calculate
them. Let’s find out as to why the small businesses should care to record
depreciation.

As we already know the purpose of depreciation is to match the cost of the fixed
asset over its productive life to the revenues the business earns from the asset. It is
very difficult to directly link the cost of the asset to revenues, hence, the cost is
usually assigned to the number of years the asset is productive.

Over the useful life of the fixed asset, the cost is moved from balance sheet to
income statement. Alternatively, it is just an allocation process as per matching
principle instead of a technique which determines the fair market value of the fixed
asset.

Accounting entry – DEBIT depreciation expense account

and CREDIT accumulated depreciation account.

If we do not use depreciation in accounting, then we have to charge all assets to

expense once they are bought. This will result in huge losses in the following
transaction period and in high profitability in periods when the corresponding
revenue is considered without an offset expense. Hence, companies which do not
use the depreciation expense in their accounts will incur front-loaded expenses and
highly variable financial results.

Final Notes
Depreciation is an important part of accounting records which helps companies
maintain their income statement and balance sheet properly with the right profits
recorded. Using a good business accounting software can help you record the
depreciation correctly without making manual mistakes.
You can try ProfitBooks. It is a simple accounting software which lets you create
professional invoices, track expenses and calculate taxes without any accounting
knowledge.
 To create Master data we have the T-Code as

 AS01/AS02/AS03:Create/Change/Display Asset master record

• To create Transactional data we have the T-Code as

• AB01/ AB02/ AB04: Create/Change/Display Asset Document

• AFAB: Post Depreciation