Tips on Spreading Depreciation with the Smoothing Indicator

  • by Kees van Westerop, Senior SAP Consultant, Kwest Consulting
  • March 20, 2014
Kees van Westerop alerts you to some unexpected effects when you use the smoothing indicator, which spreads depreciation costs over the current year.
Learning Objectives

After reading this article, you will know how to:

  • Set the smoothing indicator
  • Understand the implications of this indicator
Key Concept

Asset accounting in an SAP system offers several ways to control the depreciation of fixed assets. It enables the simultaneous posting of asset depreciations as well as the simultaneous reporting of depreciation according to several accounting principles.

Sometimes depreciation starts a couple of months after the acquisition of a fixed asset. For example, when you use mid-year depreciation, which is US Generally Accepted Accounting Practices (GAAP) compliant, and you acquire an asset in March, depreciation starts in July. By setting the smoothing indicator, the SAP system spreads the depreciation postings over all periods for which the depreciation is still to be posted.

In the example of the March acquisition, the depreciation is spread from March up to and including December. However, there is no change in the value of the depreciation. Assume depreciation in the year of acquisition should be $6,000. In case smoothing is not used, the depreciation from July up to and including December will be $1,000 per month. In case smoothing is used, then the depreciation will be $600 per month. Depreciation is posted from March up to and including December. 

Kees van Westerop

Kees van Westerop has been working as an SAP consultant for more than 25 years. He has an MBA degree in mathematics and a degree in finance. Kees has been concentrating on the financial modules, especially in general ledger accounting, cost center accounting, and consolidation. He also has a great deal of experience with rollouts of kernel systems and integrating finance and logistics.

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