Table of Contents

1. 2. 3. 4. SCENARIO OVERVIEW ................................................................................................................... 2 REQUIREMENTS / EXPECTATIONS ............................................................................................ 2 SAP ORGANISATION STRUCTURE .............................................................................................. 3 BUSINESS PROCESS ......................................................................................................................... 4 4.1 4.2 5. 6. 7. 8. 9. 10. 10.1 10.2 10.3 10.4 10.5 11. BUSINESS PROCESS FLOW CHART <OPTIONAL> ........................................................................... 4 BUSINESS PROCESS DESCRIPTION .................................................................................................. 4

CHANGES TO EXISTING ORGANISATION ................................................................................ 7 KEY BUSINESS IMPROVEMENT................................................................................................... 7 DESCRIPTION OF FUNCTIONAL DEFICITS .............................................................................. 7 NOTES ON FURTHER IMPROVEMENTS .................................................................................... 7 SYSTEM CONFIGURATION CONSIDERATIONS ...................................................................... 7 DEVELOPMENTS CONSIDERATIONS .................................................................................... 8 DATA CONVERSION CONSIDERATIONS .......................................................................................... 8 INTERFACE CONSIDERATIONS ....................................................................................................... 8 REPORTING CONSIDERATIONS ....................................................................................................... 8 FORM CONSIDERATIONS ................................................................................................................ 8 ENHANCEMENT CONSIDERATIONS ................................................................................................ 8 AUTHORISATION CONSIDERATIONS ................................................................................... 9

1. Scenario Overview
To acquire the Intangible Asset from external agency. Examples of Intangible assets are Goodwill, Advertising Expenses, training, Start up Cost, Research & Development activities, Rights under Licensing Agreements, Patents, Copyrights, Trademark Brands, and Computer Software etc. In some case, intangible assets are generated internally.

2. Requirements / Expectations

To record the intangible assets in the books of the company in proper classification as Gross carrying amount, accumulated amortization and impairment loss at the beginning and at the end of the period, Reconciliation of carrying amount at the beginning and at the end of the period. To record the assets in the books of the company in proper classification as per Schedule VI requirement of Companies Act. These assets are to be classified in
1. 2. 3.

Technical Know How Licenses Software

New class can be added as and when required by system person. Following relevant information like needs to be documented. 1. Description of assets 2. Make, 3. Specification, 4. Quantity, 5. Purchase order no, 6. Supplier Code and Name, 7. Invoice No., 8. Cost center, 9. Business area, 10. FI Document Number, 11. FI Document date, 12. GL Account Number 13. Date of commissioning, 14. Method of Amortisation, 15. No of days for which amortised

16. Cost Amount in INR, 17. Cost components (like installation charges, freight charges, custom duty etc), 18. Cost Amount in Foreign Currency, 19. Opening Net Block 20. Opening accumulated Amortisation 21. Amortisation amount 22. Accumulated amortisation 23. Impairment loss /Revaluation Reserve 24. Net block

To facilitate amortization as per Accounting Standard, Income Tax Act and/or replacement value for Insurance purpose as per RBI Index factors. Amortization Period and pattern or method of amortization will be separately determined for individual asset. Report for Carrying amount of intangibles, whose life is restricted, pledged as security Intangible Assets are to be capitalised only when it meets recognition criteria and it is ready to use. Sometimes expenditure is incurred but no intangible asset is acquired or generated then it should be expensed out. Separate disclosure is required for Research and Development expenses recognized as expense during the period Intangible assets register (additions, deletion, transfers and cumulative) in the format prescribed under CARO. Foreign exchange fluctuation capitalised (addition/deletion)

3. SAP Organisation Structure

Chart of Depreciation EOL Company Code 1000 Depreciation Areas 01 Book Depreciation 15 Income Tax Depreciation 80 Insurance Valuation - Depreciation with out impact of impairment _ C.A. Act Depreciation-change of methods

Asset Classes

4. Business Process
4.1 Business Process Flow Chart <Optional>
<Attach a Visio flow chart of the business process. Identify each process box with serial number as occurring in business flow>

4.2 Business process Description

Purchase of intangible Assets User raises the purchase requisition for purchase of intangible assets. Purchase requisition is approved by appropriate authority, based on authority limit (we need to fix the limit of authority) for purchasing of assets. Thereafter the Accounts department will check whether capital budget is available for the purchase of same. If the Capital Budget is not available then a request for special approval is made to higher authority at appropriate level as per authority limit. Once the capital budget is approved for purchasing of intangible assets generally computer Software or some advertising or development expenditures which can be treated as Intangible assets on fulfilment of required conditions, Purchase /service order is raised against vendor. Assets if any will be received by User department. Payment will be released simultaneously or afterwards to the vendor after the invoice verification. Accounting entries are a. Goods Receipt Debit the Capital WIP A/c / Asset Account (Fixed Assets Suspense Account) and credit the G/R I/R Clearing A/c (Vendor Suspense Account). At this stage the status of the consignment is Received

b. In cases, where installation of item is required, the item shall be capitalised from the date of installation c. Invoice Verification Debit the G/R I/R Clearing A/c and credit vendor account d. In case the difference in PO Value and Invoice, is within tolerance limit difference will accounted in price difference account and will be expensed. In case difference is not within tolerance limit, PO will be modified, GRN will be reversed and fresh GRN will be made before invoice verification

For Work Orders executed: a) Certification of Work Executed: Debit Capital WIP (work Contract) A/c and Credit Provision A/c. b) Invoice Verification Debit Provision A/c and Credit Vendor liability A/c. c) Capitalisation When asset is ready to use finally, the accounting entry that takes place is Debit Asset A/c, Credit Capital WIP A/c (Work Contract)

Asset will be amortized on the basis of Best Estimates or license agreement as the case may be. However period will not exceed more than 10 years. In the case of longer period, it will be authorised by appropriate authority. Amortization method will also be determined. Generally Straight Line Method is followed. At the end of each financial year amortization method will be reviewed and if the expected useful life of intangible assets or pattern of future economic benefit has significantly changed, the amortization method should be changed accordingly At each Balance Sheet date, once intangible asset is capitalised, it is assessed and recoverable amount is determined. If carrying amount is more than recoverable amount, the impairment loss will be calculated and it will be treated as per AS 28. Separate process has been given for this.

Step # 1

Department All

User Role All applicable

Process Description Purchase Requisition

SAP Module MM

Step #

Department

User Role users

Process Description

SAP Module

All

Based on Approval for purchase of authority item limit Accountant Accounts person will check whether capital budget is available In case where capital budget is not available a request will be made for specific approval to a higher authority Create Intangible Assets, Inquiry, analysis of quotation and finalisation of vendor(s), Purchase raised. order will be

Non SAP Non SAP Non SAP

Accounts

All

Appropriate higher authority (Based on authority limit) Specified users MM User

5 6

Special Cell MM

FI Non SAP MM MM

7 8

MM MM

MM User MM User

In the case of internal development, material costs + training costs + Salaries & wages will be capitalised as an Intangible assets if it meets required conditions. Other wise this will be expensed. Goods Receipt Intangible Account Dr. Asset/CWIP

MM

MM User

MM

To GR/IR Account 10 MM MM User Ascertain period & pattern Amortization amortization Outside SAP MM

11

MM

MM User

Invoice Verification GR/IR Account Dr. To Vendor Account

Step # 12

Department MM

User Role MM User

Process Description In Case of Work Order, on Certification of work CWIP Account Dr. To Provision Account On Invoice Verification, Provision Account Dr. To Vendor Liability Account

SAP Module MM

13. Account

Accountant

Settlement of CWIP and Capitalization of asset Intangible Assets Dr To CWIP Account

FI

5.

Changes to Existing Organisation

Integration between MM and FI will facilitate automatic recording of journal entries in FI.

6. Key Business Improvement 7. Description of Functional Deficits

Ref. # Description of Functional Deficits Recommendation to Fulfill Functional Deficits

8. Notes on Further Improvements

Nil

9. System Configuration Considerations

Separate Asset classes needs to be created for intangible assets. Evaluation Group and Location needs to be customized for classifying the assets for future verification Automatic Account assignment to be ensured for facilitating integration of MM and FI

10.
Ref. #

Developments Considerations
Reference Development Specification Number

10.1 Data Conversion Considerations

Description of Objects / Data to be Data Conversion Converted Method (CATT, LSMW, Development) Nil

1. 2.

10.2 Interface Considerations

Ref. # 1. 2. Description of System / Process to be Reference Interfaced Specification Number Nil Interface Document

10.3 Reporting Considerations

Ref. # 1. 2. 3. 4. 5. Description of Report Requirements Reference Development Specification Report

Report for Intangible assets whose life is restricted Report on Intangible assets Report on Forex Fluctuation capitalised Separate Disclosure for Research & Development Expenses Report on assets pledged as security

10.4 Form Considerations

Ref. # 1. 2. Description of Forms Nil Reference Enhancement Specification Number

10.5 Enhancement Considerations

Ref. # 1. 2. Description Requirements Nil of Enhancement Reference Enhancement Specification Number

11.

Authorisation Considerations
Assets Acquisitions for company Codes will be done at company code level. Officers of Assets Department & above level will be authorised to perform assets acquisition activity.