Maintaining the Periodic Settlement of Investment WBS Elements

Objective

After completing this lesson, you will be able to explain the periodic settlement of an investment WBS element

Settlement Rules

The first deliveries for the welding cell have arrived at the Bike Company. The invoices are posted against the relevant WBS elements. Periodic settlement of the WBS elements has not yet been carried out, so the incurred costs are not yet assigned to the assets under construction.

The figure shows the settlement rule process where a sender transfers costs to a receiver. The work breakdown structure element (WBS element) has collected costs: the costs that do not require capitalization and those that do not require capitalization. Debits that do not require capitalization are settled to a cost center, while debits requiring capitalization are settled to an asset under construction.

Kevin asks Lisette if he needs to prepare something for periodic settlement. She answers that 100% of the costs are automatically settled to the AuC to which the WBS element is linked. If there are costs that cannot be capitalized, then Kevin must maintain a settlement rule with settlement type PRE. This settlement rule determines where and how the costs are to be settled.

Watch the video to learn more about maintaining settlement rules:

The rolling gates were created for the welding cell by Bike Company workers.

This took 8 working hours. However, because the intercompany billing rate contains sales costs, 10% of the costs cannot be allocated to the asset under construction. Instead, this is allocated to the cost center.

Periodic Settlement at the Close of the Period

The costs for the AuC must be debited by the end of the month. This is done through periodic settlement. The settlement process has two options:

By Period: All debts to the receivers in Controlling (CO) with a preliminary settlement rule are settled, and the costs are internally settled to the AuC.
Automatic: Periodic settlement is performed as with the by period method. In addition, if the investment project (WBS element) is technically completed, the system automatically selects the Partial Capitalization processing type.

During the month, expenses are recorded to the project using various G/L accounts. No entries were made directly to the receivers (AuC and Cost Center).

The figure shows an example of a settlement rule where costs associated with a work breakdown structure (WBS) element are settled. Costs of EUR 10,000 are debited to the WBS element under the expense account 65000500. These costs are then credited by settlement, resulting in a zero balance. The debits are allocated to two receivers: EUR 1,000 are settled to a cost center, EUR 9,000 to an asset under construction (AuC) with account number 16009000.

At month-end closing, the project's costs are settled, with 90% going to the AuC and 10% to the cost center. To maintain a zero balance, a new credit line is added to the project. The settlement rule determines how much goes to each receiver.

After settlement, €9,000 appears in the balance sheet under assets under construction.

To learn more about the periodic settlement run, check the video out:

Kevin's Key Takeaways

Note

The AuC linked to the WBS element is automatically the receiver of the settlement
Maintain receiver cost center with settlement type PRE
Execute settlement per ledger

Settle the WBS Element Welding Cell to the Assigned Asset Under Construction

Now, help Kevin start the periodic settlement run for the welding cell.

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