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]

ERP Systems: Microsoft Dynamics 365's Vendor Invoices Processing (Setup Areas)

ERP Systems

Invoices can be set up to be imported automatically in Dynamics 365 for Finance and Operation (D365 F&O) via Invoice Capture (see process). Besides the Invoice Capture-related set up, there are several areas related to Vendor invoice's processing:

General Ledger

Accounts for automatic transactions need to be defined at least for the 'Vendor invoice rounding off' and 'Rounding variance', respectively for the 'Exchange rate gain' and 'Exchange rate loss', if this wasn't done already.

To facilitate accounts' reconciliation and reporting, one can enable a Batch transfer rule for the Source document type 'Vendor invoice' and thus one journal is used for each Vendor invoice. This also makes sure that the Description from Invoice will be taken over in the Journal, which facilitates accounts' reconciliation.

Subscription Billing

In case one needs to defer the amounts over a time interval (e.g. x months), as it's the case for prepayments, the integration with Subscription Billing on the Vendor side in F&O seems to work with minimal configuration. A Billing schedule is created for each Invoice distribution and can be modified or cancelled after the Invoice is posted, if needed.

If your organization uses Subscription Billing also for Accounts Receivables (AR), one might need to compromise on the setup because the same parameters are used for both modules. 

In what concerns accounts' reconciliation, there seems to be a 1:1 mapping between the Schedule line and the General Ledger (GL) posting, a table with the mapping between the records being available. One can build thus a Paginated report to display the mapping between AP and GL, if the infrastructure is in place (e.g. by building a data lakehouse/warehouse based on F&O, see post). 

Fixed Assets

One can enable the creation of Fixed assets by checking the "Create asset during product receipt or invoice posting" radio button in Fixed assets parameters.

The feature "create the fixed asset automatically during the time of invoice import" for PO-based Invoices (with "Create Fixed Asset" flag set at line level) doesn't seem to be supported yet.

Vendor Invoice Journals

Before Invoice Capture, Vendor invoice journals were helpful for posting summarized cost invoices that are not associated with POs (e.g. expenses for supplies or services). One can still use this approach, however if the line-based details are important, then it makes sense to use Pending vendor invoice with Service items or Procurement categories.  

A single Vendor invoice is created as one Vendor invoice journal. 

Organization Administration

When using workflows, setting the same language for all LEs can reduce the amount of redundant information maintained in the workflow(s), otherwise the texts need to be provided for each language. 

Default descriptions can be enabled for Purchase orders' invoice ledger and vendor to carry the same description entered Pending Vendor Invoices in Invoices and Journals. The functionality works also for Cost invoices.

Ideally, Invoice's description should have been maintained in Invoice capture and/or Microsoft should have provided a default description also for it. 

System

Unless there's a requirement to post manually the journals from subledger to GL, a batch transfer for subledger journals must be created for each LE.

One can enable email notifications for the users participating in workflows and use workflow delegations for the intervals the respective users are on leave. 

All users participating in the workflow must be available also as active employees. It makes sense to do latest when the integration goes Live. Moreover, the Users need to have the appropriate permissions for the roles they have in the process.

Vendor Invoice Automation

There's further functionality available under the 'Vendor Invoice Automation' label (see [1], [2]), though the following are the most important ones: 

• Automatically apply prepayments to vendor invoices
• Automatically submit imported invoices to the workflow system.
• Match product receipts to pending vendor invoice lines.

Recurring Vendor Invoice Templates

Microsoft introduced with 10.0.38 PU a new feature called 'Vendor invoice templates', which allows creating recurring vendor invoices without the need to enter all the vendor invoice information for each separate invoice (see [3]). There seems to be no information available whether any integration between this feature and Invoice Capture will be supported.

E-Invoicing

EU countries need to enforce the Directive 2014/55/EU for Vendor and Customer invoices. The directive requires that the electronic exchange of invoice documents between suppliers and buyers to occur over government-held third-party solutions. Each country has its own system(s) and regulations with different scope and timelines. Some countries have already requirements for 2024, respectively 2025 and there are similar projects in US and other countries. 

Even if Microsoft started this year (2023) to provide country-specific integrations for e-Invoicing, for the moment there seem no information available on how e-Invoicing will integrate with Invoice Capture.

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Resources:
[1] Microsoft Learn (2023) Vendor Invoice Automation (link)
[2]Microsoft Dynamics 365 (2023) The Future of Finance: Unlocking the Benefits of Accounts Payable Automation (link)
[3] Hylke Britstra (2023) Recurring vendor invoice templates (link)
[4] Dan Edwards (2023) AP Automation at DynamicsCon (link)