Final Capital Budgeting

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Capital Budgeting in SAP: 

Capital Budgeting in SAP A representative outline of Capital Budgeting Processes

Outline business decisions for the consideration for implementing Capital Budgeting using SAP Project Systems, Investment Management and Asset Management Modules.Identify functionality and integration between these three SAP Modules (Project Systems, Investment and Asset Management), and other modules such as Materials Management and Time and Expense.Describe best practices for budgetary controls.Outline the tax and cash flow benefits and impact of cost segregation cost studies: 

Outline business decisions for the consideration for implementing Capital Budgeting using SAP Project Systems, Investment Management and Asset Management Modules. Identify functionality and integration between these three SAP Modules (Project Systems, Investment and Asset Management), and other modules such as Materials Management and Time and Expense. Describe best practices for budgetary controls. Outline the tax and cash flow benefits and impact of cost segregation cost studies Objectives of this presentation

Process Flow for Capital Budgeting: 

Process Flow for Capital Budgeting

Business Process Designs: 

Business Process Designs How to implement a capital budgeting process using SAP

What business decisions are required?: 

What business decisions are required? Project Systems What are types of capital projects? Where will these capital projects be located? What is the time periods for these capital projects? Who will plan and budget these capital projects? How will planned and budgeted values roll forward? Who will manage these projects?

What business decisions are required?: 

What business decisions are required? Investment Management What is the entity’s investment structure? How will potential investments be evaluated? How will the budgeted valued be set and monitored? Who will approve the budget and changes? How will budgeted values roll forward?

What business decisions are required?: 

What business decisions are required? Asset Management Where will the assets from Capital Projects reside? How are assets placed in service from Capital Projects? What is the Asset Class structure? Who manages the tax savings related to asset class structures?

What business decisions are required?: 

What business decisions are required? Time and Expense charges to Projects What is the entity’s policy on capitalizing time and expense costs to projects? Who approves time and expenses charges to capital projects? How will budgeted values roll forward?

What business decisions are required?: 

What business decisions are required? Procurement Activities to Projects What is the entity’s business requirements to monitor procurement activities for capital projects? Who is responsible for monitoring procurement activity for capital projects?

Investment ProgramsThe capital budgeting process development begins with the defining of the Investment Program Structure in Investment Management. The structure options can follow a cost center hierarchy, geographical view, and line of business or a strategic plan. : 

Investment Programs The capital budgeting process development begins with the defining of the Investment Program Structure in Investment Management. The structure options can follow a cost center hierarchy, geographical view, and line of business or a strategic plan.

Projects Systems: 

Projects Systems The Work Breakdown Structure (WBS) element can serve as an Investment Measure. Planned, budgeted and actual costs can be collected and charged to WBS elements. Planned and budgeted costs can be defaulted from WBS elements once assigned to an Investment Management Structure. Alternatively, planned and budgeted costs can managed in the Investment Management Structure.

Project Identification: 

Project Identification Various project types, for example, major construction, information technology or smaller value capital projects can be accomplished in defining project profiles. Project Profiles separate functional requirements, capital, expense, legal entities, currencies and controlling areas.

Work Breakdown Structures: 

Work Breakdown Structures The Work Breakdown Structure offers standard system status management to control the timing of beginning work or release, completion of work or technically completed and project closure Once the WBS is released, commitments or purchase orders, charges or invoices or employee time and expenses can record

Asset Management: 

Asset Management Actual costs, related to goods receipt and invoice verification processes, can be managed on a Work Breakdown Structure (WBS) level. Actual costs charged to a primary cost element using a WBS as a cost object, can be settled periodic to an Asset Under Construction (AUC). Once work is completed, AUC costs can then be settled to a fixed asset.

Functionality Overview: 

Functionality Overview Key Budgetary Controls

Budgeting ControlsBudgeted values can be derived from planned values or determined independent of planned values. With the availability control functionality in Investment Management, commitments and actual costs can be monitored according to the entities’ policy. Budgeted values can be modified, increased or decreased as business conditions changes. Transfer of budgeted values within the investment structure is available. Other budgetary controls included are supplements and returns.: 

Budgeting Controls Budgeted values can be derived from planned values or determined independent of planned values. With the availability control functionality in Investment Management, commitments and actual costs can be monitored according to the entities’ policy. Budgeted values can be modified, increased or decreased as business conditions changes. Transfer of budgeted values within the investment structure is available. Other budgetary controls included are supplements and returns.

Budgeting ControlsBudgeting can be performed on an annual or overall basis or both. Various release strategy can be determined for budgeting funding. Commitments can only be processed after a policy driven release strategy is performed. : 

Budgeting Controls Budgeting can be performed on an annual or overall basis or both. Various release strategy can be determined for budgeting funding. Commitments can only be processed after a policy driven release strategy is performed.

Budgetary Reporting: 

Budgetary Reporting Budget and planning reporting within Project Systems and Investment Management. Drill down capability available in all standard reports. BW offers standard info cubes for Project Systems and Investment Management.

Functionality Overview: 

Functionality Overview Key Processes

Planning for Fixed Asset InvestmentsThe Investment Programs component provides functions for planning and monitoring of investment budgets encompassing many different measures, on a cyclical basis, of an entire corporate group. Investment Measures can be assigned to investment program positions. Plan values on investment measures can be rolled up in the Investment Program to provide an integrated planning process.: 

Planning for Fixed Asset Investments The Investment Programs component provides functions for planning and monitoring of investment budgets encompassing many different measures, on a cyclical basis, of an entire corporate group. Investment Measures can be assigned to investment program positions. Plan values on investment measures can be rolled up in the Investment Program to provide an integrated planning process.

Budgeting Strategy & Year End: 

Budgeting Strategy andamp; Year End Budgeting can be performed on an annual or overall basis or both. Various release strategy can be determined for budget funding. Commitments can only be processed after a policy driven release strategy is performed. Budgeted values can be transferred or carry forward to future years in accordance to the entity’s policy. The next year budget can be created automatically. New projects and investment structure changes can be included in the carry forward process

Fiscal Year Change & CarryforwardBudgeted values can be transferred or carry forward to future years in accordance to the entity’s policy. The next year budget can be created automatically. New projects and investment structure changes can be included in the carry forward process.: 

Fiscal Year Change andamp; Carryforward Budgeted values can be transferred or carry forward to future years in accordance to the entity’s policy. The next year budget can be created automatically. New projects and investment structure changes can be included in the carry forward process.

Commitments to WBS elements: 

Commitments to WBS elements The commitments that are recorded using the Work Breakdown Structure as the cost object will become charges to an expense account. Completion of a goods receipt on the purchase order will charge the expense account and offset this entry to a good receipt/ invoice receipt clearing account. At the end of each accounting period, a settlement process will clear the expense to another expense account used as clearing account and capitalize the cost for the Asset Under Construction (AUC) to a balance sheet account.

Settlement to the AUC: 

Settlement to the AUC The vendor invoice record an offset entry to the goods receipt/invoice receipt account, as well as record the liability for the vendor payable. The final step in this capitalization process is at project completion, the Asset Under Construction (AUC) is settled to final fixed asset(s) either by invoice amount, dollar amount or percentages. Assigning the final fixed assets to the AUC settlement rule enables the settlement process to the final fixed asset

Accounting Entries related to the Asset Acquisition : 

Accounting Entries related to the Asset Acquisition

Business Decisions before Settlement to Fixed Asset from AUC: 

Business Decisions before Settlement to Fixed Asset from AUC Cost segregation analysis should include vendor invoices, contracts and design drawings. Analysis of costs for tax live determination can be easier using a standard WBS structure. Coordination of operations, financial and tax personnel will provide comprehensive cost segregation study.

Cost Segregation Studies - Description: 

Cost Segregation Studies - Description Cost segregation is a strategic tools that allows companies to increase their cash flow by maximizing depreciation benefits for tax purposes. Specifically, it is an analysis of capital expenditures that results in the proper classification of costs between real and personal property for determining tax deductions for depreciation.

Cost Segregation Studies - Benefits: 

Cost Segregation Studies - Benefits Reduce income taxes, in addition, real estate taxes and personal property taxes may be reduced. Increase cash flow. Maximizes tax credits. Provide an opportunity to claim 'catch up' depreciation on previously misclassified assets. Provide information that is valuable in managing capitalized assets.

Review of Key Concepts: 

Review of Key Concepts

Questions and Answers: 

Questions and Answers

How do you learn more?: 

How do you learn more? Contact Christopher S. Courter, CPA Office Phone (281) 682-7032 Email Address: Christopher.Courter@morningstarbc.com Website: www.morningstarbc.com

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