Lesson 3 of 6
Assets under construction
6 min
Some assets are built over months: a new assembly line, a building extension, a test rig. While they are being built, their costs must be collected on the balance sheet, but they are not yet in use, so they are not depreciated in book areas. That is the job of an asset under construction (AuC). SAP's learning content describes the two phases, construction and use, as two different balance sheet items, managed with different asset master records. Moving the value from the AuC to the final assets is called capitalization of the AuC.
- Month 1Project approvedContoso approves a new alternator test rig in Detroit; an AuC is created in the AuC asset class
- Months 1–5Costs collectedSupplier invoices, internal labor and materials post to the AuC or to a project that settles to it
- Month 6Ready for useThe rig is commissioned; final asset master records are created
- Month 6SettlementAuC values are distributed and settled to the final assets
- Month 7 onwardDepreciationFinal assets depreciate from their start dates
How costs reach the AuC
Costs can post directly to the AuC as acquisitions, for example supplier invoices with the AuC as the account assignment. In larger projects, costs are collected first on an investment measure, an internal order or WBS element with an investment profile, which settles periodically to the AuC. Some costs on the project are not capitalizable, such as training or certain overheads, and are settled to expense instead. Deciding which costs are capitalizable is an accounting policy decision for Dan, not a system decision.
Line item management and distribution rules
An AuC can be managed as a normal master record with summary settlement, or with line item management, where each acquisition line on the AuC can be settled individually. With line item management, you define distribution rules: each rule pairs a receiver, such as a final asset or a cost center, with a percentage or equivalence number. Several rules form a distribution rule group. The system keeps current-year and prior-year line items apart, and SAP notes that only current-year acquisitions can be settled to controlling receivers such as cost centers.
- Select AuC line itemsChoose the open line items to settle
- Enter distribution rulesReceivers and percentages, for example 80% to the test rig frame asset, 15% to the control system asset, 5% to expense
- CheckRules cover 100% of each line; receivers are valid
- SettleAuC credited; final assets debited (and the cost center debited for the expense share)
- VerifyAuC balance zero for settled lines; final assets show APC and start depreciating
| Receiver | Share | Amount (of 400,000 USD) | Posting |
|---|---|---|---|
| Final asset: test rig frame | 80% | 320,000 | Debit APC on the asset |
| Final asset: control system | 15% | 60,000 | Debit APC on the asset |
| Cost center: Detroit engineering (training costs) | 5% | 20,000 | Debit expense; current-year lines only |
| AuC | 100% | 400,000 | Credit |
A worked settlement of 400,000 USD.
In Private Edition, the classic transactions for line item settlement are AIAB (enter distribution rules) and AIBU (settle). When costs are settled from investment measures, controlling settlement and the settlement profile come into play. Whatever the tools, settlement is a period-end activity with a clear owner, and an AuC that stays open long after the asset is in use understates depreciation.
- Is the asset ready for use?No → keep collecting on the AuC · Yes → continue
- Are all costs posted and reviewed for capitalizability?No → wait or settle partially · Yes → continue
- Are the final asset master records created in the right classes?No → create them first · Yes → enter distribution rules
- Do the rules cover 100% of each line, with expense receivers only for current-year lines?No → fix rules · Yes → settle and verify
What would you do?
Contoso's test rig was in use from June, but the AuC was settled only in December. What is the effect, and what should the asset accountant do?
- An AuC collects costs while an asset is built and is normally not depreciated in book areas.
- Capitalization settles AuC values to final assets, by summary or line item settlement.
- Distribution rules pair receivers with percentages or equivalence numbers; current-year lines only to CO receivers.
- Settle promptly when the asset is ready for use; late settlement understates depreciation.
Check your understanding · not graded
Lesson check
1. What is moving value from an AuC to final assets called?
2. What does a distribution rule contain?
3. Which AuC line items can be settled to a cost center?
4. Which classic transaction settles an AuC after distribution rules are entered?