Use SAP ECC 6 to Fulfill Accounting Requirements for Assets Impairment
- by Gaurav Aggarwal, Lead Consultant, SAP S/4HANA Finance, Infosys Limited
- February 24, 2014
Learn some configuration tips to help you overcome challenges in recoding the impairment loss on assets in an SAP system.
By reading this article, you will learn how to:
- Customize asset impairment more quickly
- Complete the steps for impairment posting process flow
- Avoid mistakes using these tips and best practices
Asset impairment is a key requirement of various legal regulations to ensure that an organization’s financial statements show the realistic value of its assets. Proper accounting of asset impairment in the books is quite critical to comply with the various regulations and to avoid audit issues. In the SAP Financials Accounting system, SAP ECC 6.0 offers more enhanced options for the accounting of asset impairment than earlier versions.
The process of proper identification and recording of asset impairment is key for meeting various regulatory requirements. Usually a business faces many challenges in recording the impairment posting into books and subsequently tracking them. SAP now offers more enhanced options with SAP ERP Central Component (SAP ECC) 6.0 for recording of asset impairment transactions.
There are different methods of identifying calculating impairment loss under International Financial Reporting Standards (IFRS) and US Generally Acceptable Accounting Principles (GAAP). Table 1 lists these methods and describes how they are used for IFRS and US GAAP. (The detailed explanation of the identification and calculation methods is outside the scope of this article, as I focus on the recording of impairment transactions into an SAP system.)
However, under both IFRS and US GAAP regulations, once the impairment loss is determined, it should be recognized in the books as a revaluation decrease and expense. The depreciation for the future period also needs to be adjusted to consider the depreciation on acquisition and production cost (APC) deducting impairment loss.
Under IFRS, if an asset’s (except goodwill) recoverable amount increases later on, the impairment loss earlier recognized should be decreased (reversed). However, the new value should not be more than the historical depreciated amount if no impairment loss would have been booked earlier. However, under US GAAP, reversal of impairment is not allowed.
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