Introduction of Jva Concepts Unit
Short Description
SAP JVA Concepts-For Developing good understanding of JVA Concepts...
Description
Joint Venture Accounting
2007 eBook- Joint Ventur Venture e Account Accounting ing © SAP AG 2007
1
JVA Workshop - IOGW40 Unit 1
Basics 1.1 Introduction & Accounting Principles 1.2 Master Data 1.3 Integration
Unit 2
Day-to-Day Processes 2.1 Data Entry 2.2 Operated Accounting
Unit 3
Periodic Processes 3.1 Cutback 3.2 Month End Processing 3.3 Joint Venture Billing
Unit 4
Joint Venture Configuration (in IMG) 4.1 Company Code Configuration 4.2 Master Data Configuration 4.3 Processing Configuration 4.4 JV Billing Configuration
© SAP AG 2007 eBook- Joint Venture Accounting
This online learning course consists of four units. Each unit is divided into several separate
lessons so you can work with one lesson for a longer time if necessary. However, we recommend that you complete each unit in the defined sequence in order to understand the solution better. After you have completed the e-books in all four units, you should have a good
understanding of joint venture accounting concepts, be able to set up and manage basic joint venture contracts using the SAP JVA solution, and have good knowledge of the breadth and capabilities of the SAP JVA functions.
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Unit 1.1 Objectives
By the end of this lesson, you will be able to: Define joint venture accounting concepts Explain the accounting principles behind
SAP JVA
© SAP AG 2007 eBook- Joint Venture Accounting
By the end of this lesson, you will be able to define joint venture accounting concepts and to explain the accounting principles behind SAP JVA.
3
JVA 1.1
Introduction of JVA Concepts
© SAP AG 2007 eBook- Joint Venture Accounting
The first topic of lesson 1 explains joint venture accounting concepts.
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What is a Joint Venture?
Joint Joint Venture Venture Carrots Carrots
Farmer A
Joint Joint Venture Venture Apples Apples Farmer B
Joint Joint Venture Venture Oranges Oranges
Shop
© SAP AG 2007 eBook- Joint Venture Accounting
Sometimes, several companies can jointly run a business venture more successfully than an
individual company can. The companies can combine efforts for that one venture without merging their businesses. Such projects are known as joint ventures. In the example shown here, a shopkeeper and two farmers enter a joint venture. The
shopkeeper provides the capital, transportation, and shop space while the farmers provide the produce. The three partners share profits and losses from the joint venture as agreed between them. The companies can run several joint ventures between them, but each venture is separate.
The agreements for each joint venture can be different or they can be shared. Each company participating in a joint venture is referred to as a partner . SAP Joint Venture Accounting or SAP JVA was designed for the upstream oil industry so all
the examples relate to upstream oil companies. Such companies regularly enter into joint ventures for exploration purposes, and to develop and maintain oil and gas production facilities.
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Who Runs a Joint Venture?
Plan future activities of venture
Partner A
Joint Joint Venture Venture 11
Run day-to-day activities of venture Maintain accounting records for venture Report venture activity to partners Report profit or loss to partners
Joint Joint Venture Venture 22 Joint Joint Venture Venture 33
Operator
Partner B © SAP AG 2007 eBook- Joint Venture Accounting
Sometimes, one partner takes responsibility for the day-to-day running of the joint venture.
This partner is the operator . The operator also manages the joint venture accounts and must send profit and loss reports to the other partners. The remaining partners, who do not operate the venture, are referred to as the non-
operating partners.
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Why Are Joint Ventures Used?
Companies can share
Risk
Investment
Resources
© SAP AG 2007 eBook- Joint Venture Accounting
Companies enter joint ventures for several reasons, such as to share risks, to share the burden of large or lengthy investments, and to share personnel or other resources.
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SAP JVA
Operating Partner •
Manages the venture on a day-to-day basis
•
Maintains venture accounting records
•
Calculates partner shares of venture expenditure and revenue
•
Reports venture activity to partners
Non-Operating Partners
Maintain accounting records for their own share of the venture
Settle accounts with the operating partner, according to the conditions of the venture
© SAP AG 2007 eBook- Joint Venture Accounting
In a typical oil industry joint venture, one partner acts as the operator. The operator is responsible for managing the venture on a day-to-day basis, maintaining the
venture accounting records, calculating partner shares of venture expenditure and revenue, and reporting venture activity to the partners. The non-operating partners are responsible for maintaining accounting records for their own
share of the venture and settling accounts with the operating partner, according to the conditions of the venture.
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JVA 1.1
The second topic of lesson 1 describes the accounting principles behind SAP JVA.
Accounting Principles
© SAP AG 2007 eBook- Joint Venture Accounting
The second topic of lesson 1 describes the accounting principles behind SAP JVA.
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T Accounts Account name Credit entry
Debit entry Partner Account 1
JV Costs
150
150 50
Final balance of account
100
150
Notes
JV Bank 2
1. 2.
1
2
50
Partner share of venture costs Settle partner account 50
Asset account Increase
Decrease
Liability account Decrease Increase
Capital account Decrease
Increase
© SAP AG 2007 eBook- Joint Venture Accounting
Accounting principles are often illustrated using T accounts. As with other forms of bookkeeping, JVA uses a double entry system. Each accounting
transaction requires at least two entries, one debit and one credit. You usually make the entries to different accounts. For example, if you purchase an asset using a check, the transaction is recorded as a debit entry to an asset account and a credit entry to a bank account. These transactions are displayed in T accounts. Debits are shown on the left side of the T
and credits on the right. One important feature of double entry bookkeeping is that the sum of all entries always
equals zero.
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Operator Oriented Accounting
2
Company A
Company B
Partner B
Venture Account
40
40 40
4
4
Venture Bank 100 4
Notes Company A incurs costs running the venture.
2.
Company A calculates company B’s share of costs as 40%.
3.
Company B accounts for its own share of costs.
4.
Company B reimburses company A.
40
Own Bank 1
40
4
40
60
Venture Costs 1
1. 3
Venture Costs
100
3 40
40
2
60
© SAP AG 2007 eBook- Joint Venture Accounting
In this example, company A operates a joint venture and holds a 60% share. Company B is
the only other venture partner. The accounting steps are as follows: In step 1, the operator, company A, incurs costs of 100 on behalf of the venture. In this example,
the costs are paid directly from the venture bank. This is done to simplify the example even though not all ventures have their own bank accounts. Typically, only large ventures use this operating method. In recent years even large ventures tend to be funded from shared bank accounts. In step 2, company A calculates 40% of the costs and charges these costs to the account for the
partner, company B. In step 3, company A notifies company B of the costs incurred, and company B records its own
40% share of these costs in its books. In step 4, company B reimburses company A. Funds are transferred from the company B bank
to the venture bank and the partner accounts are cleared. Company A combines accounting records for the activities within the venture with those for
its own activity. This ensures simple accounting entries, however, great care is needed when reporting because venture activities and a company’s own activities are represented by subbalances in accounts. Particular care is needed when reimbursing the venture for the operator share of costs. In the oil industry, this accounting method is used mainly by US and Canadian companies
that traditionally operate many small joint ventures.
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Partner Oriented Accounting
Operating Co.
Company A
Company B Notes
Venture Partner A 60% 2
Venture Account
60
60 60
5
5
Venture Account 3
40
60
6
40 40
5
60
6
40
Own Bank 1
60
Company A calculates the share of costs for partner A and partner B.
3.
Company A accounts for its own share of costs.
4.
Company B accounts for its own share of costs.
5.
Company A reimburses the venture.
6.
Company B reimburses the venture.
Own Bank 5
40
60
Venture Costs 1
2.
6
Venture Bank 100
Company A incurs costs while running the venture.
4
40
Partner B 40% 2
1.
40
Venture Costs
100
3 60
2
40
2
6
Venture Costs
60
4
60
40
40
© SAP AG 2007 eBook- Joint Venture Accounting
Company A operates a joint venture and holds a 60% share. The venture has one other
partner, company B. Company A creates a special operating company in which to record the venture accounts separately from its own accounts. Sometimes a real legal entity is created for a large venture. In the oil industry, this would be an exception. The accounting steps are as follows: In step 1, the venture incurs costs of 100. These are paid directly from the venture bank to
simplify the example. In step 2, company A assumes 60% of the costs, and 40% of the costs are charged to company
B. In step 3, company A records its 60% share of the costs in its own books. In step 4, company A notifies company B of the costs incurred, and company B records its 40%
share of the costs in its books. In step 5, company A reimburses the venture. Funds are transferred from the company A bank
to the venture bank and the partner accounts are cleared. In step 6, company B reimburses the venture. Funds are transferred from the company B bank
to the venture bank and the partner accounts are cleared. In this method, the operator, company A, keeps separate accounting records for activities
within the venture and for its own activity. This means more accounting entries are required, but reporting for venture activity and a company’s own activity is clear and simple.
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Operator and Partner Accounting
Company A
Company B
Venture
Company
Partner A 60%
Venture Account
2
60
60 60
5
5
Notes Venture Account 3
40
60
6
40 40
5
60
6
40
Own Bank 1
60
Company A calculates the share of costs for partner A and partner B.
3.
Company A accounts for its own share of costs.
4.
Company B accounts for its own share of costs.
5.
Company A reimburses the venture.
6.
Company B reimburses the venture.
Own Bank 5
40
60
Venture Costs 1
2.
6
Venture Bank 100
Company A incurs costs running the venture.
4
40
Partner B 40% 2
1.
40
Venture Costs
100
3 60
2
40
2
6
Venture Costs
60
4
60
40
40
© SAP AG 2007 eBook- Joint Venture Accounting
Company A operates a joint venture and holds a 60% share. Company B is the only other
venture partner. Company A records the venture accounts separately from its own accounts, but as the same company. The accounting steps are as follows: In step 1, the venture incurs costs of 100. These are paid directly from the venture bank to
simplify the example. In step 2, company A assumes 60% of the costs, and 40% of the costs are charged to company
B. In step 3, company A records its 60% share of the costs in its own books. In step 4, company A notifies company B of the costs incurred and company B records its 40%
share of the costs in its books. In step 5, company A reimburses the venture. Funds are transferred from the company A bank
to the venture bank and the partner accounts are cleared. In step 6, company B reimburses the venture. Funds are transferred from the company B bank
to the venture bank and the partner accounts are cleared. With this method, the operator, company A, keeps separate accounting records for activities
within the venture and for its own activity. This means more accounting entries are required, but reporting for venture activity and a company’s own activity is clear and simple.
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Billing Basis Joint venture partners are billed for their share of expenditure using the following types of billing basis:
Expenditure based
Invoice based
Cash based
© SAP AG 2007 eBook- Joint Venture Accounting
Billing basis refers to the point in the procurement cycle at which joint venture partners are
charged for their share of expenditure. When billing is expenditure based, partners are charged as soon as expenditure is incurred,
such as when venture materials are received at the warehouse. When billing is invoice based, partners are charged when the operator receives an invoice
for venture services or materials. When billing is cash based, when the operator pays for services and materials for the
venture, partners are charged when funds actually leave the operator’s bank account.
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Billing Basis: Expenditure Based
e l b a l l i B
Expenditure 1
Notes
JV Billing Month 1
Venture
Expenditure
100
Total
100
GRNI Accruals 100
e l b a l l i B n o N
Expen diture is incurred in month 1.
2.
An invoice is received in month 2.
3.
An invoice is paid in month 3.
100
100
2
1.
1
JV Billing Month 2
100
Expenditure
0
Total
0
Vendor 100 3
2
100
JV Billing Month 3 Venture Bank 100
3
100
Expenditure
0
Total
0
© SAP AG 2007 eBook- Joint Venture Accounting
Expenditure based billings are calculated using transactions from expenditure accounts only.
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Billing Basis: Invoice Based
Expenditure 1
e l b a l l i B
Notes
JV Billing Month 1
Venture
Expenditure
100
GRNI Accruals
100
2
1
2.
An invoice is received in month 2.
3.
An invoice is paid in Month 3.
0
GRNI Accruals 100
Expen diture is incurred in month 1.
-100
Total
100
1.
JV Billing Month 2
100
Expenditure
100
GRNI Accruals
0
Vendor 100
e l b a l l i B n o N
3
2
Total
100
100
JV Billing Month 3 Venture Bank 100
3
100
Expenditure
0
GRNI Accruals
0
Total
0
© SAP AG 2007 eBook- Joint Venture Accounting
Invoice based billings are calculated using transactions from expenditure accounts and from
accruals accounts, such as the goods received, not invoiced (GRNI) account. The balance in the accruals accounts offsets the value of expenditure, resulting in a zero
billing until the accrual is reversed by an incoming invoice.
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Billing Basis: Cash Based
Expenditure 1
Expenditure
100
GRNI Accruals
100
e l b a l l i B
Notes
JV Billing Month 1
Venture
100
2
1
Vendor
0
Total
0
2.
Invoice received in month 2.
3.
Invoice paid in month 3.
JV Billing Month 2
100
Expenditure
100
GRNI Accruals Vendor 100 3
Expenditure incurred in month 1.
-100
GRNI Accruals 100
1.
Vendor 2
0 -100
Total
0
100
JV Billing Month 3 e l b a l l i B n o N
Venture Bank 100
3
100
Expenditure
100
GRNI Accruals
0
Vendor
0
Total
100
© SAP AG 2007 eBook- Joint Venture Accounting
Invoice based billings are calculated using transactions from expenditure accounts, from
accruals accounts, and from payable accounts. The balance in the accruals and the payables accounts offsets the value of expenditure,
resulting in a zero billing until the accrual balance is reversed by an incoming invoice and the payable balance is reversed by an outgoing payment.
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Unit 1.1 Summary
You are now able to: Define joint venture accounting concepts Explain the accounting principles behind
SAP JVA
© SAP AG 2007 eBook- Joint Venture Accounting
You are now able to: Define joint venture accounting concepts Explain the accounting principles behind SAP JVA
18
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