Overhead Allocations in SAP new GL

Overhead Allocations in SAP new GL

 

Overview

Overhead Allocation in SAP Controlling has not changed much, by itself, with the introduction of new GL. The process remains the same; however its impact on financial documents in newGL has undergone a change. Also, previously you could perform overhead allocation within Profit Center Accounting. That feature has moved within the general Ledger module. In this blog, I will demonstrate some of the allocation processes in SAP and its impact on new GL.

 

Assumption for this blog

You should read some of my previous blogs to gain an understanding of the concepts around new GL and document splitting. The Blogs are under the category newGL.

http://veritysolutions.com.au/category/sap/newgl-sap/

I assume that you have activated newGL and document splitting features (including Profit Center self-balancing) and real time integration of FI and CO.

 

Impact of Overhead Allocation to newGL

In this blog, I will look at three allocation scenarios and its impact on newGL.

  • Cost Center allocation within same profit center
  • Cost Center allocation across same profit centers
  • Profit Center Allocation in General Ledger

 

What am I demonstrating

In this blog, I intend to demonstrate the newGL General Ledger allocation process and some of the CO allocation processes available in SAP. Initially, I will demonstrate Cost Center allocation within Controlling. This functionality has not changed with the upgrade to ECC. Then I will demonstrate General Ledger allocation process by allocating Profit Center costs within newGL. Then I will analyse the benefits or limitations of performing allocations within General Ledger as opposed to performing allocations within Controlling.

 

Cost Center Allocation within the same profit center

In this simple scenario, we allocate cost from one cost center to another and both cost centers belong to the same profit center.

Cost Center overhead allocation will post a Controlling document to transfer cost from sender cost center (for example 5002) to receiver cost center (for example 5004). Since both sender and receiver belong to the same profit center, there will be no reconciliation posting back to Financials – General Ledger.

I created a cost center allocation (assessment) cycle OFCOS1 as shown below.

 

I am transferring posted costs from Cost Center 5002 to Cost Center 5004. Both cost centers are assigned to the same profit center 5002.

 


When this allocation is performed, a Controlling document is posted as shown below. $250 is transferred from Cost Center 5002 to Cost Center 5004.

 

 

Cost Center Allocation across Profit Centers

In this scenario, we allocate cost from one cost center to another and the cost centers belong to the different profit centers.

Cost Center allocation will post a Controlling document to transfer cost from sender cost center (for example 5002) to receiver cost center (for example 5003). Since the sender and the receiver belong to the different profit centers, SAP newGL will post an entry back to Finance – General Ledger.

I created a cost center allocation (assessment) cycle OFCOST as shown below.

I am transferring posted costs from Cost Center 5002 to Cost Center 5003. The cost centers are assigned to different profit centers 5002 and 5003 respectively.


When this allocation is performed, the Finance journal entry is posted as shown below. Overhead amount of $500 is transferred from Cost Center 5002 (assigned to Profit Center 5002) to Cost Center 5003 (assigned to Profit Center 5003).

Since the posting is a cross-profit center posting, newGL will create a self-balancing entry to balance the two profit centers. The general ledger view of this document (reflecting the self-balancing entry) is shown below.

 

Profit Center allocation within General Ledger

In SAP ECC, Profit Center Allocation has moved from Classic EC-PCA to newGL. In newGL you can allocate costs and revenues from one profit center to another.

I created a newGL Profit Center allocation (assessment) cycle 1. Make sure you enter version = 1.

 

 

I created a segment as below. Assessment Account here is a GL Account not a type 42 cost element. Remember that this is a newGL assessment; hence the sender is a GL Account not a cost element. I created this in the same number range as with GL Account FICO Reconciliation, PCA self-balancing (as a non cost element P&L Account).

This segment transfers cost from Profit Center 5002 to Profit Center 5003.

 

This allocation posted a newGL Financial document as below. The balance in Profit Center 5002 of $1000 is allocated using the GL assessment account of 690003.

 

Since this is a cross-profit center posting, the General Ledger view is created as below.

 

Conclusion

The newGL allocation cycle is very similar to the previous FI-Special Ledger allocation and EC-Profit Center Accounting allocation functionality. However, like the EC-Profit Center Accounting allocation functionality, performing assessment in newGL very redundant and not recommended as a routine. One of the problems is that the total of cost center costs will not tie up with the associated  profit center costs.

Below is a cost center report for all cost centers associated with Profit Center 5002. After cost center allocation, the net balance is $500.

 

Below is a General Ledger report for Profit Center 5002. The cost center balance of $500 ties with GL account 651000 ($1,000) and 690000 (-$500). Since the $500 allocated cross-profit center, newGL posted an entry into 690001 of $500.

After General allocation, the profit center balance is -$500 (GL Account 651000 + 690000 + 690003) as compared to cost center balance of +$500.

 

Reconciliation is rendered slightly more difficult with no significant benefits. I would recommend that all overhead allocations be performed in base (Controlling) cost objects. The only business scenarios I can envisage where General Ledger allocation will be used is where, at period end, Controlling module is closed for posting and top-side adjustments have to be performed between profit centers. Even if General Ledger allocations were used for this purpose, I would recommend that these adjustments be reversed the following periods and allocations performed using base cost objects.

Please Share

I hope this blog has helped you understand the impact of overhead allocation on new GL. Please do leave your comments below whether this article was helpful; and whether you have any suggestions/ comments; or if you would like to share your experience with new GL.

I strongly recommend you share this blog with your network using one of the social media icons at the top or bottom of this page.

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View my presentation on newGL on Slideshare

 

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Rajesh is regarded as an authority in optimising and re-engineering Finance processes for his customers. Rajesh has 12 years experience implementing SAP / IT / BPM Finance solutions for several customers; he was involved in two large global rollouts and has a strong focus on Management Accounting and Reporting primarily Product Costing, Profitability Reporting and Material ledger (Transfer Pricing, Actual Costing). He also has 7 years experience working in the business in Finance and Accounting functions. His business process knowledge combined with his IT expertise enables him to provide his customers with best-of-breed advice on business process / IT implementations.

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Comments

  1. Rajesh brilliant work please accept my congrats. I have one question regarding New GL-PCA. Can you perform assessment from sender cost centre to receiver profit centre? I am trying to do it and in test mode it shows that its taking the cost from the cost center and distributing it Profit center lets ABC1 and ABC2 and when I do it it just debits and credit the same Profit center which is mapped to the transferring cost center.

  2. HI Rahjesh,
    Nice document but i have a small question. instead of doing allocations in FI,why cant we reverse the entry in the old profit center and post another entry to the new profit center rather than doing it through allocation in FI.

    • Hi Venkat

      My demo was a simple example of FI allocation. Of course, it is posting from one profit centre to another profit centre we could just post a correction document. FI allocations is for larger set of profit centres that need allocation. It replaces the previous FI-SL allocation.

      Rajesh

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