08 January 2024

Dynamics 365: Fixed Assets (Notes)

Disclaimer: This is work in progress intended to consolidate information from various sources.

Fixed Assets (aka FA)

  • assets that a company owns and uses in the daily operations of the company and are not intended for resale to customers [1]
    • ⇐ the same asset might be classified as a FA in one company and as a current asset or inventory item in another [1]
  • represent permanent value and not just expenditures in the year of acquisition [1]
  • typically depreciated, or expensed, over their useful life
    • other adjustments might also be necessary
    • their useful lives span multiple years [1]
  • treated as balance sheet transactions in the year that they are acquired, and are posted as an asset to a balance sheet account [1]
  • {action} review asset value in the balance sheet (net book value) 
    • should be reviewed at least one time each year  [1]
      • it can be reviewed monthly, quarterly, semi-annually, or annually [1]
    • an adjustment of the asset value in the balance sheet (write-down or write-up) might be necessary  [1]
      • the adjustments are usually caused by some extraordinary occurrences in the market that affect the price if the company were to reacquire the asset. [1]
      • ⇐ accounting principles in some countries or regions prohibit the write-up of assets [1]
  • {action} remove asset from the accounting books
    • when a company no longer has use for the asset [1]
      • ⇐ because it is either being sold or scrapped [1]
    • the original acquisition price and accumulated depreciation of the asset are reversed, and any surplus or loss from the disposal is posted to the profit and loss statement [1]
  • {action} dispose asset
    • the fixed asset transactions that were previously posted are reversed out of the original accounts [1]
    • the net amounts are then moved to the appropriate account for gain and loss for asset disposal [1]
  • Fixed asset groups 
    • allow specifying default attributes for every FA that is assigned to a group [1]
      • include the service life and the depreciation convention.
      • FAs are assigned to a group when they are created [1]
    • the only required field when creating a FA [1]
  • Books 
    • track the financial value of a fixed asset over time by using the depreciation configuration that is defined in the depreciation profile
      • ⇐ each book tracks an independent financial lifecycle of an asset [1]
    • assigned to fixed asset groups
      • {default} the books assigned to the FA group are then assigned to the FA [1]
    •  books that are configured to post to the GL are associated with a posting profile
      • GL accounts are defined for each book in the posting profile and are used when fixed asset transactions are posted [1]
      • ⇐ the configuration is the default setting because it's typically used for corporate financial reporting [1]
    • books that don't post to the GL post only to the Fixed asset subledger and are typically used for tax reporting purposes [1]
      • this approach allows the flexibility to delete historical transactions for the asset book because they haven't been committed to GL [1]
      • {field} Post to general ledger
        • {No}disables posting to the general ledger for the book
          • sets the Posting layer field automatically to None
    • each book that is attached to a FA is set up for a particular posting layer that has an overall depreciation objective [1] 
    • derived books
      • setup in addition to the standard books [1]
      • simplify the posting of FA book transactions that are planned for regular intervals
        • one book is chosen as the primary book, which is usually the one used for accounting depreciation [1]
          • then attach to it other books that are set up to post transactions in the same intervals as the primary book [1]
            • ⇐ tax depreciation books are often set up as derived books [1]
        • allow posting transactions to different posting layers at the same time [1]
        • acquisitions, acquisition adjustments and disposals can be set up with it
          • use acquisition when the book and the derived book should be applied to the FA from the time of the fixed asset acquisition [1]
          • if the primary book and the derived books have the same intervals regarding sale or disposal, all FA transaction types are available for the setup of a derived book [1]
          • depreciation posted in the derived book will be the same amount as was posted for the primary book [1]
            • if the depreciation methods are different between the books, one should not generate depreciation transactions by using the derived process [1]
              • ⇐ the books can then be attached to specific fixed assets [1]
      • the specified derived transactions are posted against the derived books as an exact copy of the primary transaction [1]
        • ⇒ derived transactions are typically set up for acquisitions and disposals, not for depreciation transactions [1]
      • when posting transactions for a book that contains derived books, the derived book transactions are posted automatically in journals, purchase orders, or free text invoices [1]
      • when preparing the primary book transactions in the FA journal, one can view and modify the amounts of the derived transactions before posting them [1]
      • certain accounts are updated only once by postings of the primary book [1]
        • e.g. sales tax and customer or vendor accounts
      • derived book transactions are posted to the accounts that have been defined for the derived book in the FA posting profiles page [1]
      • {exception} books that are set up to post transactions at intervals other than the primary book intervals must be attached to the FA as separate books and not as derived books [1]
  • depreciation
    • an entry that expenses the part of the asset's original purchase price that was used during the year [1]
    • FAs are depreciated in different ways for different purposes
      • depreciation for tax purposes 
        • calculated by using current tax rules to achieve the highest possible depreciation before taxes [1]
      • depreciation for reporting purposes
        • calculated according to accounting laws and standards [1]
      • the various kinds of depreciation are calculated and recorded separately in the posting layers [1]
  • depreciation methods
    • straight line
      • computed by taking the costs of the acquisition and dividing those costs by the expected service life of the asset [1]
        • the rules are usually defined in the local legislation [1]
  • depreciation profiles 
    • allow configuring via rules how the value of an asset is depreciated over time
      • it's needed to define the method of depreciation, the depreciation year (calendar year or fiscal year), and the frequency of depreciation [1]
    • a primary depreciation profile is assigned to every book
      • ⇐ books also have an alternative (aka switchover depreciation) profile, if this type of profile is applicable [1]
        • the depreciation proposal will switch to this profile when the alternative profile calculates a depreciation amount that is equal to or greater than the default depreciation profile [1]
      • ⇐ enable the Calculate depreciation option to automatically include the FA book in depreciation runs [1]
    • usually refers to tangible assets, but intangible assets can also use depreciation profiles [1]
    • financial assets are considered non-depreciable [1]
      •  e.g. shares of stocks or bonds 
    • extraordinary depreciation profile
      • used for additional depreciation of an asset in unusual circumstances [1]
        • e.g. record depreciation that results from a natural disaster
    • depreciation calculation methods:
      • Straight line service life
      • Reducing balance
      • Manual
      • Factor
      • Consumption
      • Straight line life remaining
      • 200% reducing balance
      • 175% reducing balance
      • 150% reducing balance
      • 125% reducing balance
      • ⇐ most companies use one or more of the straight-line methods, one or more of the reducing balance methods, or the manual method [1]
      • ⇐ the rationale for all methods is to allocate or accrue the depreciable value of the asset into accounting periods [1]
        • the depreciable value of the asset is the acquisition price reduced by a scrap value, if any
      • ⇐ many depreciation profiles with the same depreciation method can be created for different calculations [1]
  • posting profile 
    • must be defined for each book that will post to GL, but it can also be defined at a more detailed level [1]
      • e.g. can be defined for the combination of a book and a FA group, or even for an individual FA book [1]
      • Set up a posting profile record general ledger
    • for each posting profile, one must select the relevant transaction type and book, and then designate the ledger accounts [1]
  • {option} Create depreciation adjustments with basis adjustments 
    • {selected} depreciation adjustments will be automatically created when the value of the asset is updated [1]
    • {not selected} the updated asset value will only affect depreciation calculations going forward [1]
    • {not enabled} for an asset, the depreciation proposal skips the asset [1]
  • {optional} define special depreciation allowances, or bonus depreciation, for a specific combination of a fixed asset group and a book [1]
    • assign a priority to the special depreciation allowance to specify the order in which allowances are calculated when multiple allowances are assigned to a book [1]
  • Journal names 
    • create the journal names that should be used with the FA journal.
      • set the Journal type field to 'Post fixed assets'
      • set the Voucher series field so that the journal names are used for the FA journal [1]
      • FA journals should not use the One voucher number only setting
        • ⇐ because a unique voucher number is required for several automated processes, such as transfers and splits [1]
    • each journal used for depreciation is defined by its journal name for only one posting layer [1]
      • the posting layer in the journal can't be changed [1]
        • the restriction helps guarantee that transactions for each posting layer are kept separate [1]
      • at least one journal name must be created for each posting layer [1]
        • for books that don't post to GL create a journal where the posting layer is set to None [1]
  • {parameter} Capitalization threshold
    • determines the assets that are depreciated
    • if a purchase line is selected as a fixed asset, but it doesn't meet the specified capitalization threshold, a fixed asset is still created or updated, but the Calculate prorated depreciation option is set to No. Therefore, the asset won't be automatically depreciated as part of the depreciation proposals.
  • {option} Automatically create depreciation adjustment amounts with disposal
    • {Yes}, the asset depreciation is automatically adjusted, based on the depreciation settings at the time of asset disposal [1]
  • [Purchase orders] 
    • {option} Allow asset acquisition from Purchasing
      • {Yes} asset acquisition occurs when the invoice is posted [1]
      • {No} the FA can be put on a PO and invoice, but the acquisition won't be posted [1]
        • the posting must be done as a separate step, from the FA journal
    • {option} Create asset during product receipt or invoice posting 
      • {enabled} a new asset is created while posting
        • ⇒ the asset doesn't have to be set up as a fixed asset before the transaction
  • [Purchase requisitions] {option} Check for fixed assets creation during line entry
  • Fixed asset number sequence 
    • can be overridden by the FA group number sequence if it has been specified [1]
  • depreciation conventions for groups of assets that are part of the same book
    • {action} updating the depreciation convention
      • delete all depreciation transactions that exist for those assets [1]
      • delete all transactions for depreciation adjustments, transactions for bonus depreciation, and transactions for extraordinary depreciation for those assets [1]
    • {action} update the depreciation convention for assets that have already been disposed
      • delete first the existing disposal transactions [1]
      • delete all transactions that were generated because of the disposal process [1]
    • {action} after updating the depreciation convention for assets
      • process depreciation and extraordinary depreciation for each asset [1]
      • make manual depreciation adjustments, if any adjustments are required [1]
  • [General Ledger] main accounts 
    • {default} the ledger accounts that are defined are used for your FA transactions [1]
    • {recommendation} define the ledger accounts that are used during the disposal processes, both disposal sales and disposal scraps [1]
    • {recommendation} to help guarantee that transactions are correctly reversed, set up accounts for each type of transaction that you use in your business [1]
      • the main account should be the original account set on the posting profile for the transaction type, and the offset account should the gain and loss for disposal account [1]
      • {exception} for the net book value, the main account and the offset account should be set to the gain and loss for disposal account [1]
      • various combinations of main accounts can be created depending on the level of detail needed in GL [1]
    • can be based on transaction types, books, and other main accounts [1]
    • the value of all FAs is typically summarized in multiple main accounts that are required for financial reporting [1]
    • each time a transaction is posted for a FA, the appropriate main accounts are updated
      • ⇐ the main accounts always show the updated value [1]
    • the main accounts that are used for posting are determined by the options for ledger integration that are specified for the item model group [1]
      • the main accounts that are used vary, depending on whether an asset is assigned to the purchase order line [1]
      • the accounts are derived from the posting profile for each item group [1]
  • [Inventory management]
    • inventory items can be transferred to FAs either as an acquisition or as part of an acquisition [1]
      • an inventory item becomes a FA acquisition through 
        • inventory journal
          • one can enter the acquisition of FA that the LE has produced or constructed for itself [1]
        • PO
          • one PO line creates one fixed asset, regardless of the quantity [1]
          • items can be set up for both resale and internal use [1]
            • using specific receipt and issue accounts on item groups for FAs, one can use the same inventory item both for internal purchases and as stock for resale [1]
        • acquisition proposal
        • ⇐ with it a FA book acquisition transaction is created [1]
          • if a book acquisition includes a derived book, the derived book acquisition transaction is also created [1]
    • the effect the acquisition of fixed assets has on inventory depends on LE's setup [1]
      • posting rules control the decrease in inventory when an acquisition is posted [1]
        •  the inventory isn't always decreased when posting invoices related to FA [1]
    • FAs for internal use must have an account type of 
      • 'Fixed asset receipt'
        • used to track FA's receipt
        • when posting a Vendor invoice, use the FA receipt account if any of conditions hold:
          • the invoice line contains an existing FA for internal purposes [1]
          • the New fixed asset? check box is selected for the product receipt line that is posted [1]
          • the 'Create a new fixed asset' check box is selected for the vendor invoice line [1]
        • typically, this account is an expense account
      • 'Fixed asset issue' 
        • used to track the issuing of the FA to the recipient 1[]
        • when an asset is acquired by using a PO, the FA issue account offsets the FA debit account [1]
        • the asset acquisition can be posted either when posting the Vendor invoice or when posting the asset acquisition in the FA journal, possibly by using an acquisition proposal [1]
      • ⇐ setup for either an item group or an individual item by using the Purchase order tab on the Item group or Posting page [1]
    • if an inventory reservation exists when product receipts are posted, one can’t assign or create a FA from the line [1]
    • the accounts that FA transactions are posted to depend on two factors:
      • whether the assets are purchased or constructed by the LE [1]
      • the transaction type of the asset
        • connects the inventory transaction to the posting profile in FAs [1]
        • because the posting profile in FAs defines which accounts are updated, the selection of a transaction type for a FA is also, indirectly, the selection of the main accounts that the transaction is posted to [1]
        • for both constructed and purchased fixed assets, the transaction type is typically Acquisition or Acquisition adjustment [1]
  • [Accounts receivable]
    • the integration uses posting profiles that are set up in FAs
      • activated when a FA, book, and FA transaction type is selected for a Customer invoice before the customer invoice is posted [1]
      • selling a FA must be done via Free text invoices
        • ⇐ because FAs aren’t part of Inventory management [1]
  • [Accounts payable]
    • typically, FAs are acquired from external vendors
  • asset acquisitions are posted either
    • when posting the Vendor invoices
      • FA accounts are updated whenever a Vendor invoice for a FA acquisition is posted [1]
      • the transaction is posted according to the posting profiles that are set up in FAs for the various FA transaction types [1]
    • from FAs
  • [Project management and accounting]
    • a project can be associated with a FA asset that is affected by the project
      • each phase, task, or subproject can be associated to a different asset [1]
      • one FA can be associated with each project record [1]
      • the association is created via the Fixed asset number field on the Projects page [1]
        • typically, applies to projects related to work, maintenance, or improvements for the FA [1]
      • the project type must be either Internal or Cost project
      • clear the Fixed asset number field on the Projects page to delete the association [1]
    • when the project is completed, a write-up adjustment for the asset isn’t created automatically [1]
      • ⇒ must be created manually [1] 
    • one can designate a FA created or manufactured as part of an estimate project [1] 
      • at the end of an estimate project, one can automatically post a FA acquisition transaction [1]

Acronyms:
FA - Fixed Asset
GL - General Ledger
LE - Legal Entity
PO - Purchase Order

Resources:
[1] Microsoft Learn (2023) Configure fixed assets management in Dynamics 365 Finance [link]

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