Budget Checking for Prepayment Transaction

[analistia16]

Hi All,

I have searched for similar discussion about this but haven't found one answered yet. (i found this http://scn.sap.com/thread/1145759, but no answer has been given)

I have few questions regarding prepayment transaction:

1. What is the common practice for prepayment budget checking, is it when doing the prepayment posting (budget in prepaid B/S account) or when doing the amortization (budget in expense account)

2. My client set their budget in annual basis, which I think the checking should be set when doing amortization. In this case, is there any way/ work around to ensure that budget is reserved for the amortization? Here's an example:

Amount of prepayment: 12,000

Period of amortization : 12 months

In this case, if amortization has been done for the first month, the budget for the rest 11 months (11,000) is still "free" and accessible by other transactions.

I am thinking of utilizing earmarked funds to reserved the budget and direct the recurring amortization to the earmarked fund. But for this option, the necessary customization seems to be heavy.

Any thoughts on this?

Many thanks,

[Former Member]

Hello,

You might want to clarify with your client whether this is about (1) PO down payment; (2) A JV prepayment transaction that is not integrated with other modules; (3) Only involving budget (no cash out of the door). In case (1), the system updates the consumed budget with the downpayment. In case (3), you can use earmarked funds. The tricky part is case (2). It is actually your client's call whether they want to control budget at the time of booking prepayment (cash out of the door) or at the time of amortization. I once asked my business owner about this matter and was told both were practiced in the US.  In the former case, you attach a 30/3 commitment item to the prepayment B/S account and it will update consumed budget; in the latter case, at the time of prepayment there is no budget control (just like inventory purchasing) and amortization debits expenses which update the consumed budget. 

Regards,

Ming 

[analistia16]

Hi Ming,

Thanks for your prompt response.

Case in my client differs with down payment. This time they want to control prepaid expenses for site rental and insurances which requires the payment to be made full at the beginning.

If i may further clarify, if we go with option one, which budget is set at the B/S account, my client will need to set the whole budget for prepaid at the early year of the payment (not in annual basis like setting budget for expenses?)

And if we go with option two, which budget is set at expenses, I am going to need to develop enhancement to ensure that setup for recurring amortization entries generate earmarked fund to reserve the budget.

Kindly help to clarify and share your thoughts.

Thank you,

Analistia

[iklovski]

Hi,

Concerning the stage, on which the budget is checked, prepayment or real expense, there is no best practice solution: it really depends on your client's requirements. You can set it only on one stage or on both, manage it in different AVC ledgers or in common one, etc.

As for amortization budget: why do you worry about consumption of the budget by other transactions? Of course, you can manage EMF documents if you want to be more strict, but it indeed involves some developments. Otherwise, cannot you strictly distinguish the budgetary addresses to be used for different business transactions?

Regards,

Eli

[analistia16]

Hi Eli,

Thanks for your response,

As for your statement:

"Otherwise, cannot you strictly distinguish the budgetary addresses to be used for different business transactions?"

If by this mean you mean to arrange the derivation rules, the expense account can be posted not only from amortization. Is there any way to lock specific amount of budget to only receive actual transactions from amortization?

Please kindly share.

Many thanks,

Analistia

[iklovski]

Hi,

If you can identify these transactions by means of some parameters, then you can derive them and only them to the specific budgetary address (combination of your FM objects) via FMDERIVE. Blocking (reserving) amount for certain operations could be done by standard means only using EMF.

Regards,

Eli

[Former Member]

Hi Analistia,

If I understand it correctly, your client is using annual budget. Don't they have to enter the final annual budget by certain deadline date sometime at the earlier part of the year? Even before that, a proposed budget should be available at day one of a new fiscal year. Option one should not be an issue when annual budget is available, or are you talking about prepayment for more than one year? For option two, if you want budget to be reserved for amortization expense, you just need to create the EMF immediatly after budget is loaded (this is exactly what we do). So, I still do not understand why budget is not available at the beginning of the year.

Regards,

Ming

[analistia16]

Hi Ming,

Yes, exactly, what I meant for option one is if the prepayment will serves multi-year purposes (e.g. building rent). If this is the case, the budget for the prepaid expenses has to be set at the year of payment, right? I will have to raise this to the client since their policy is to set the budget in annual basis.

And as for the option two, good to know that someone has been implementing EMF for prepayment! Will try to check if recurring entries can accept Earmarked Fund input.

Thank you!

[Former Member]

Hi,

For option one, I would say yes. Since they are spending money at that point, they will have to allocate enough budget to cover it.

For option two, the amortization expense line in the recurring entry will need to refer to the EMF# (field KBLNR).

Regards,

Ming

[Former Member · Accepted solution]

Hi,

Keep it simple and straight.

First Identify how may prepayments or prepaid expenses are applicable in your business process.

Create a commitment item for each one of them. Budget for each prepayments/prepaid will be maintained in the commitment Item.

Assign the GL (B/S and P&L) to specific Commitment Item.

In derivation rule, try to derive this commitment item based on X parameter.

Budget for the commitment item annually as in your case

Create PR and PO (Non GR Based IR)  which will create encumberance and post MIRO for which the entry will be Debit B/S and Credit vendor and the commitment item will be prepaid which will create actual postings.

On periodic Amortisation, the entry will be Debit P&L and Credit B/S with the same commitment item.

I hope this should solve your issue.

Regards
Abishay Solomon