🗒️Dynamics 365: Fixed Assets [Note]

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]

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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]