Methods of Depreciation Calculation in SAP & its Types

What is Depreciation Calculation in SAP?

Depreciation calculation in SAP is the periodic and permanent decrease in the value of the fixed asset over its economic life period because of its usage and associated wear and tear. There are various methods of depreciation calculation in SAP that we can use. It depends on the business itself as to which method works best for them.

Planned & Unplanned Depreciation Calculation in SAP

SAP supports two kinds of depreciation – planned and unplanned. You can calculate planned depreciation (ordinary & special) automatically through depreciation keys. It contains the value settings and calculation rules for arriving at the depreciation amount.

However, you can also manually undertake unplanned depreciation, including reduction of APC transfer of reserves. I have also mentioned more about it a bit later here.

Planned Depreciation Calculation in SAP

The usual depreciation calculation in SAP that we do, are planned depreciation. The calculation methods that we use in SAP FICO are all part of planned depreciation. Additionally, the depreciation calculation methods in SAP all fall under planned depreciation.

Importantly, the entire framework of planned depreciation calculation is based on the depreciation keys that you use in the depreciation areas.

SAP Depreciation Keys

A depreciation key contains the necessary control parameters for valuating an asset in a depreciation area. It contains the calculation methods and control parameters for controlling ordinary and special depreciation and scrap and cutoff values.

We categorise Planned depreciation into two types further, i.e Ordinary and special.

Ordinary Depreciation

It represents the planned depreciation to take care of the general wear and tear due to the usage of an asset during its useful life.

Special Depreciation

You use special depreciation to depreciate an asset from the point of taxation without considering the actual wear and tear. Determine the depreciation areas for special depreciation using T Code- OABS and select the Special Depreciation.

Unplanned Depreciation Calculation in SAP

You need to undertake unplanned depreciation in special circumstances such as if a fire makes an asset unusable. Use a manual dep key to complete depreciation. You also need to have a suitable transaction type defined to manage unplanned depreciation in addition to completing the usual activities such as determining the depreciation areas and assigning the appropriate ledger accounts.

Now let us learn the methods of depreciation calculation in SAP and their methodology.

Methods of Depreciation Calculation in SAP

A calculation method forms part of a depreciation key and you use it to define the parameters for depreciation calculation. There are multiple Depreciation methods available in SAP. Now we will discuss them all in detail below.

Base Method

Valid across a chart of depreciation, you use these to define the type of depreciation (Ordinary, special tax depreciation) and depreciation method (declining balance method, sum of the year’s digit method etc).

You may not need to define a new base method because SAP-supplied base methods are more than sufficient. However, we can define our base method. T Code- AFAMR.

Learn important SAP FICO TCodes

Declining-balance methods

With these, the annual calculation of depreciation is reduced by a constant percentage that is calculated from the useful life and multiplication factor and then multiplied by the assets NBV. Though, in a declining balance method, you can never make the NBV equal to zero. You can use any of the SAP supplied methods or define your using T Code – AFAMD.

Maximum Amount Method

Use these to define a maximum depreciation amount that cannot be exceeded before a certain calendar rate. If the system arrives at a depreciation exceeding this maximum amount, then it reduces depreciation to the extent required. This helps the overall depreciation does not exceed the maximum allowed for that time. Use T Code – AFAMH to define the new maximum amount method.

Multi-Level method

One of the disadvantages to the base methods (stated percentage) is that they use a total percentage rate to calculate depreciation over the entire life of the asset. You can define a method by specifying varying periods of validity for a certain percentage rate so that a different percentage is applied once the particular validity of a period is over.

For each of these methods, you can define when the validity starts – from capitalization date, from ordinary depreciation start etc. Use T Code – AFAMS to create a new multi-level method.

So, around these depreciation calculation methods the whole system functions. These methods of depreciation calculation in SAP covers all types of assets and thus are very important.

Depreciation run in SAP

The depreciation run is a periodic processing program in Asset accounting that posts planned depreciation to all assets. Mostly depreciation run executed periodically (every month) although we can run depreciation on, a quarterly or yearly basis too.

To execute depreciation run, use T code- AFAB.

On the selection screen, enter the company code, fiscal year and posting period for which to run the depreciation.

You can choose the Total Log radio button if you want to see only depreciation totals or choose the Detailed Log radio button to see the deprecation for each asset.

See below after execution:-

Most companies schedule their depreciation run in the background and run on specific dates based on the month-end schedule, rather than manually executing Transaction AFAB at the end of each month.

Also Read: Fiscal Year Variant in SAP

Depreciation in SAP FICO

Assets are mostly dealt with in Financial Accounting. Hence, the depreciation calculation works also become a part of SAP FICO or S4 HANA Finance. That is why it is mainly the responsibility of the SAP FICO consultants to work upon the depreciation calculation and its related task. We can calculate depreciation periodically and yearly as per company structure and calculation process decided.

Which method of depreciation calculation to choose, depends on the business we are working for. They will provide this information as to which methods work best for them. It mainly depends on the company’s law, income tax information etc.