Explaining Asset Life Cycle and Its Organizational Structure to Represent a Fixed Asset


After completing this lesson, you will be able to:

  • Identify all important parts of an asset life cycle
  • Outline assets organizational structure according to asset classes
  • Create asset master data

Life Cycle of Fixed Asset

Business Scenario

Kevin recently joined the accounting department of the Bike Company. His tasks are based particularly on Asset Accounting. Shortly after Kevin got hired, the company purchased a new excavator. Excavator is an asset, so it needs to be recorded in Asset Accounting based on its life cycle. During its useful life, the excavator gets worn out. This wearing needs to be recorded as depreciation. Now, what does that mean for the asset life cycle?

An asset is typically an object, a right, or an item owned by an enterprise. It is intended for long-term use and can be identified individually in the balance sheet. Each asset belongs to a company code. All postings made for the asset (acquisitions, retirements, depreciation, and so on) are posted in the assigned company code.

Asset Accounting is used to manage and monitor tangible fixed assets. Asset Accounting provides detailed information about the transactions in tangible fixed assets.

Since Kevin wants to learn more about the life cycle, he looks at the video.

Asset Class

Business Scenario

Now that Kevin is aware of the asset life cycle and the master data requirement, he wants to enter information about the new excavator in the system. He decides to start with creating asset master data. To ensure that the excavator is depreciated correctly, it is important that the excavator appears in the reporting of fixed assets under the correct asset class - machines. Kevin wants to learn more about the structuring of fixed assets.

To be able to manage values in asset accounting for a fixed asset, an asset master record is needed.

You can create new fixed assets in the management of fixed asset master data. You can use an existing fixed asset as a template or create the fixed asset from scratch.

The asset class object plays a central role in the definition of the asset master record. Each asset must be assigned to one asset class. That is important because in the asset class, you define certain control parameters and default values for depreciation and other master data.

To learn about the role of the asset class, Kevin watches the following video.

  • Asset classes are the most important means of structuring fixed assets for reporting purposes.
  • The assignment of asset numbers can be controlled by the asset class.
  • Another important function of the asset class is to establish the connection between the asset master records and the corresponding accounts in the general ledger. Multiple asset classes can use the same account assignment. For example, two separate asset classes like machines and special machines will be connected to the same account assignment key. That is why it is possible to structure fixed assets in more detail at asset class level. Such structuring makes no sense at a G/L account level. 

The asset class is a characteristic in the universal journal entry. This means that in order to separate the data in reporting in General Ledger Accounting by asset class, there’s no need to create a new account determination for a new asset class.

For the excavator, Kevin chooses the asset class for machines. As a result, the excavator appears under the asset class Machinery in reporting.

Asset Master Data

To learn more about creating the master record, Kevin watches the Asset Master Data video.

The asset master record can be deleted if the asset is not yet capitalized. If the asset is capitalized but the asset class is incorrect, a transfer to a new asset master record with the correct asset class is required.

Now that Kevin understands the principles of master data creation, he looks at the creation of a master record in Asset Accounting in the system.

Create Asset Master Record in the APP Manage Fixed Assets

Log in to track your progress & complete quizzes