MACRS : Asset Acquisitions(Mid-Quarter-Convention) S_ALR_87012047

Business -Requirement

What does mid quarter mean?

The midquarter convention treats all property placed in service (or disposed of) during any quarter as placed in service (or disposed of) on the midpoint of that quarter.

Mid-Quarter Convention (USA)

There are certain tax laws (mid-quarter convention) in the United States that require you to calculate depreciation on the basis of half-periods. When the fiscal year version in the FI General Ledger corresponds to the calendar year (12 periods), you can meet this requirement without using a different fiscal year variant in Asset Accounting

What are the Various MACRS Conventions?

For calculating the amount of deduction to take under the MACRS depreciation formula, certain timing conventions must be used when placing an asset into service. In particular, the MACRS mid-month, mid-quarter, and half-year conventions is mentioned below :

  1. Mid-Month Convention – Straight-line depreciation which the taxpayer computes only on real property based on the number of months property is in service. The taxpayer takes one half month of depreciation in the month the property is placed in service and one half month of depreciation is taken for the month in which the property is removed from service.
  2. Mid-Quarter Convention – If more than 40 percent of the depreciable personal property is placed in service in the last quarter of the year, the taxpayer must use the mid-quarter convention.
  3. Half-Year Convention – In general, a half-year convention applies to personal property, under which such property placed in service or disposed of during a taxable year, is treated as having been in service or disposed of at the midpoint of the year. In other words, if a taxpayer places an asset in-service during the beginning of the year, the appropriate MACRS treatment would still require only a half year of depreciation expense to be taken against taxable income.
    Machinery and equipment use the half-year convention unless over 40% of the investment was placed into service in the last quarter of the year in which case the taxpayer uses the mid-quarter convention. For real estate, the taxpayer uses the mid-month convention.

S_ALR_87012047   : Asset Acquisitions(Mid-Quarter-Convention)

S_ALR_87012047   : Asset Acquisitions(Mid-Quarter-Convention)

This report fulfills the American mid-quarter convention regarding the preparation of financial reports. It lists asset acquisitions in the reporting year per quarter, and can compare actual acquisitions against planned capital investments. In the selection screen of the report, you can specify whether you want to include planned investments (projects, and so on) in the report.

The sort version that you specify in the selection screen determines how data is sorted. The breakdown is always by quarter. The system takes into account the fiscal year version of the company code concerned.

In order to ensure a useful result, you should choose a sort version:

  • That totals at least at the company code level
  • For which the Statistics indicator is set on the level that you want to break down by quarters

Output

The report lists asset acquisitions in the reporting year per quarter. In addition, it shows the maximum acquisition amount for the fourth quarter, at the time of call-up, as stipulated by the mid-quarter convention (in other words 40% of the total acquisition amount for the year in question). If total acquisitions exceed this amount in the last quarter, the report issues an warning.

You can display a report showing the individual acquisitions for a quarter and level of summarization that you select, by selecting a line for that quarter.


SAP Solution-ing HELP

There are certain tax laws (mid-quarter convention) in the United States that require you to calculate depreciation on the basis of half-periods. When the fiscal year version in the FI General Ledger corresponds to the calendar year (12 periods), you can meet this requirement without using a different fiscal year variant in Asset Accounting.

Subsequent Changes to Period Control

It is sometimes necessary, according to American financial reporting requirements, to use the mid-quarter convention. This convention might require you to change the control of the start of depreciation in the last quarter of the fiscal year, for acquisitions in the current fiscal year.

  If you change period control from mid-year to mid-quarter, you have to change to all assets that were created with the old depreciation start date. This can be done individually or using mass change.

  The system helps you to comply with the mid-quarter convention by means of a standard report. (S_ALR_87012047). Also see Year-End Activities in Asset-Accounting

There are two ways of reflecting the requirements of the mid-quarter convention in the system:

  • Depreciation key with time-dependent period control
  • Depreciation key and sub-number per acquisition year

Depreciation key with time-dependent period control

Set the Period control according to fiscal years indicator in the Customizing definition of the depreciation key you want to use ( Depreciation  >Valuation Methods  >  Period Control >   Define Time-Dependent Period Controls ). These keys then no longer use the period control of your depreciation key. Instead they use period controls that you specify, which are dependent on time and company code. You can define your own specific period controls for these depreciation keys

  • Per company code
  • Per fiscal year and
  • Per transaction type category
  • Change the time-dependent period control in these depreciation keys (in the application menu: Environment  Current Settings ).
  • Start the program for the re-calculation of depreciation for the affected company codes.

  Note that the system uses an across-the-board treatment for retirements of the following years when you use this method. This means that the system does not check whether the asset acquisition was in a year that used the mid-quarter convention or in a year with normal period control. Regardless, the system always uses the period control entered in the depreciation key for the retirement.

Depreciation key and sub-number per acquisition year

In order to avoid this across-the-board treatment, you can define a special mid-quarter depreciation key, and then work with asses numbers per acquisition year. Make the following settings:

  • Define a special mid-quarter depreciation key. Set the following:
  • In the depreciation key, set the Acquisition only in the capitalization year indicator. This ensures that the acquisitions in following years have to be managed on asset sub-numbers. As a result, the information about whether the acquisition year is a year with mid-quarter depreciation is not lost.
  • In the depreciation key (or in the period methods assigned to it), set period control for acquisitions and retirements at mid-quarter.
  • Manage a separate sub-number for each acquisition year.
  • Enter this special depreciation key in the asset main numbers and asset sub-numbers that were acquired in this year. You can use a mass change to enter this depreciation key.

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