Facilitating the planning for new assets, calculating the future depreciation and evaluating the financial impact.
Significance of Capital expense planning
In the budget cycle, when planning for new assets, one needs to keep an eye on both the investment amounts as well as the projected depreciation costs. On one hand, the agreed-on investment budget will limit the capital expenditure, on the other hand, depreciation costs of both running assets and new investments will directly impact your profit and loss statement.
Requirements for Budget Assets Depreciation
The future depreciation charges will originate from existing assets, assets in progress and any new assets defined during the planning cycle. All these assets have a lifecycle which is determined upfront together with the depreciation plan although, in reality, the asset lifecycle can still deviate from this, as assets on hand can be disposed of, assets in progress can end up costing more and lifecycle of assets may even be prolonged. The impact of these changes will need to be monitored.
With all these assets typically being spread across different budget owners, locations and currencies, next to the common necessity for multi GAAP reporting, keeping a good overview may be quite challenging.
Let’s evaluate the two pre-packaged solutions put forward within CCH Tagetik.
Option 1: Capital expense planning in CCH Tagetik – Financial Workspace
In this prepackaged solution, the existing assets are out of scope as they are expected to be available directly from another source system.
For new investments, the module allows applying different depreciation rules on the same asset, driven by the entity (or group of entities) acquiring the assets.
Within the same depreciation rule, we can obtain up to 5 different depreciation methods.
In the above example, we use 2 of them illustrating a local GAAP versus an IFRS method whereas the lifetime for the same asset is considered different.
Each method has it’s specific monthly specific depreciation percentages.
As such one can define very precisely what depreciation method is to be applied (on the level of Asset/Owner(entity, cc…)/Method combination), with the 5 different depreciation methods, saving the results towards separate output categories to allow easy reporting according to different reporting standards.
Option 2: Smart NOW Capital expense planning in CCH Tagetik - Analytical Information Hub
In this new solution, CCH Tagetik offers a workflow facilitating the end-user to configure the functionality according to his reporting needs.
As such the workflow allows to extend the time horizon by adding more scenarios, to define and apply different depreciation rules, to specify the asset lifetime and choose among an existing depreciation method ( like straight line, declining, etc.) or a custom depreciation method.
Thereafter it is possible to specify the custom depreciation percentages per month in the next worksheet.
With the approval notion, a threshold can be set in different currencies, below which initiatives will automatically be approved.
The Calendar Year – Fiscal Year mapping needs to be maintained, allowing the result of the investments – based on a calendar year – to be published into the terminology for financial reporting within the Financial Workspace.
It’s good to see that also actual assets are in the scope of this solution. Once all the information and data is ready and loaded, it is up to an individual responsible to plan new initiatives.
New assets can be enter via the input form “Data entry – new Assets” by adding an extra line and saving, this will kick off to generate new master data “on the fly”.
Upon saving a new asset, the asset value, a purchase date and an in-service date and some extra information fields can be completed. For assets in progress, the specific investment amounts per month can be detailed.
Subsequently, managers are presented with a list of new initiatives and can decide whether or not to approve such initiatives into the plan.
Amendments can be made for existing assets depreciation. For example, Lot 908 gets disposed and sold for 20k USD.
Finally, both existing and new assets can easily be reviewed in a nice output report. For example, we see that Lot 908 gets sold for 20k (cash in) and as such gets to be removed from the Balance Sheet and any future depreciation.
Another example is this new initiative, where we see the built-up of an asset in progress. Followed by a switch towards an existing asset, together with the related depreciation plan.
Summary: pros and cons of the 2 options
The initial solution for Capital Expense Planning, built solely in the Financial Workspace, is straight forward and simple to use, within the focused playfield it’s targeting limited to planning only for new planned CAPEX.
The new SmartNOW solution for Capital Expense Planning makes use of the CCH Tagetik Analytical Information Hub and is much richer, covering a wider playfield. As such, it covers much better all the typical needs and requirement of the Capital Expense Planning process.
More information on CCH Tagetik’s AIH can be found on this page.
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