About Project Capitalization

Capitalization per Transaction or as a Period-End process

Project capitalization is the process of temporarily removing project cost and/or revenue from the Profit&Loss statement. The capitalization postings can either be added to the transaction voucher during general ledger update, or be created in a separate periodical process. The method can be decided for each individual project. Projects that use periodical capitalization have the option to maintain two independent capitalization principles (project types) in the General Ledger (GL) and in one selected Internal Ledger (IL). When separate GL/IL rules are in use, the posting process will be controlled by voucher types that are specific to each ledger. Using a voucher type that only update a selected ledger will avoid duplicating capitalization entries in one ledger against the other. When used with periodical capitalization, revenue recognition for a project can also be executed independently in GL and for a selected IL.

Other Benefits

In addition to the above, the following options are also available for projects that use periodical capitalization:

• Exclude specific accounts from capitalization
• Exclude specific activities from capitalization
• Partial closing of projects based on amount or percentage
• Partial closing of projects based on the WBS structure (subproject)

Regardless of using periodical or transaction based capitalization, some other important options are also available:

• Multiple cost reposting rules (multiple code strings)
• Change project type and other rules for a re-opened project
• Project completion history logging

Capitalization Posting Method

The capitalization posting method for a project can have the values Transaction or Periodical.

Transaction - With this setting, project capitalization postings will be created automatically when a cost or revenue voucher row is updated to the general ledger.

Periodical - Capitalization for projects with this setting will take place as a periodical process initiated by the user. This process can run at the end of any accounting period.

Options available when using each capitalization posting method are:

Initiate Periodical Capitalization

The process of periodical capitalization is initiated by setting the capitalization posting method to Periodical for the project. This could be defaulted from the project group as well. The capitalization positing method cannot be changed for projects that already have capitalization postings.

When the capitalization posting method is set to Periodical, the system will not create capitalization entries (postings) for the project when cost or revenue vouchers are updated to the GL. Instead capitalization will be initiated by a periodical process.

Project Accounting in Internal Ledger

If periodical capitalization is used for a project, capitalization and revenue recognition can be executed differently in the internal ledger compared to how it is done in the general ledger. This allows companies to execute project accounting in accordance to two selected accounting guidelines, e.g. US GAAP and IFRS, in IL and GL.

Only one internal ledger in a company can be set-up to use this functionality. This is done by selecting the IL Project Accounting check box in the Define Internal Ledgers window. This is only allowed for an internal ledger where the code part for project accounting is included.

Project Basic data for multiple ledgers

All projects set-up for periodical capitalization can have separate project accounting principles in GL and IL. This is enabled by selecting the option Separate GL/IL Rules. Projects with this setup can hold two sets of project capitalization and revenue recognition principles in the following basic data windows:

• Project
• Project Groups

Function Groups and Voucher Types

Voucher types from two function groups will be used when periodical capitalization is in use:

1. Function group P (Project Transactions) – for revenue recognition and project completion
2. Function group PPC (Periodical Project Capitalization) – for periodical capitalization.

In order to maintain capitalization and revenue recognition independently in two ledgers, the system has to post those entries independent to each ledger as well. The number of ledgers each voucher is posted to is controlled by the Ledger Selection field in the Define Voucher Type window. This field can have following values:

• GL, Affect IL - The voucher type is valid in the GL but, depending on the used accounts, might affect all or selected internal ledgers too.
• General Ledger - The voucher type is valid only in the GL.
• Internal Ledger - The voucher type is valid only in the IL. If internal ledger is selected, a specific internal ledger ID must be defined in the Ledger ID field.

Function Group PPC (Periodical Project Capitalization)

To execute periodical capitalization with separate GL/IL rules, 3 voucher types from function group PPC must be defined. If periodical capitalization is not used by the company, voucher types from the function group PPC are not required.

Function Group P (Project Transactions)

Three voucher types from function group P are needed when working with project that use Separate GL/IL Rules.

Basic Data Set-up for Periodical Capitalization

The voucher types from function group PPC, which should be used when posting periodical capitalization to each ledger combination, can be defined in Periodical Capitalization Information window.

Basic Data Set-up for Revenue Recognition

The voucher types from function group P, which should be used when posting revenue recognition to each ledger combination, can be defined in Revenue Recognition Information window.

Project Execution

The process of project execution or posting of day to day transactions to project using periodical capitalization is not different to how it is done for projects using transaction based capitalization. Project transactions are still created and used in the same way in all components, for example IFS/Purchasing, IFS/Manufacturing.

Execution of Periodical Capitalization and Revenue Recognition (PCRR)

The periodical capitalization and revenue recognition process can be initiated at the end of a selected accounting period from periodical capitalization and revenue recognition.

This process can be defined for the unique combination of accounting year/period and ledger in a company. It is possible to create up to 3 PCRR records for each accounting period with the following ledger selections:

Once defined, this process will pass through the following statuses:

Month End Operations

Periodical capitalization and revenue recognition is a period-end process which needs to be performed as one of the last operations of a period. All transactions for the period must be completed and all vouchers must be updated to the GL. It is recommended that the period is closed for all user groups other than the one working with this process.

1. Define PCRR
   Define a periodical capitalization and revenue recognition row for a selected period and ledger.
2. Run periodical capitalization
   The process will select projects that qualify and calculate/post periodical capitalization for the selected period and ledger. If periodical capitalization is calculated for one or more projects, these amounts will be posted to a voucher from function group PPC and the process will be set to Capitalized. If there are no projects that require periodical capitalization, the system will not create a voucher but the process status will still be set to Capitalized. In the latter case, the process will also get the Empty Capitalization check box selected.
3. Execute revenue calculation
   This will calculate revenue recognition for qualifying projects for the selected ledger up to the current period. If there are no projects that require revenue recognition, the Empty Revenue Recognition check box will be selected.
4. Acknowledge
   Once revenue has been calculated, it can be reviewed/updated. When satisfied with the result, the recognized amounts should be acknowledged.
5. Create Revenue Recognition Voucher
   This will create a revenue recognition voucher from the P function group for the acknowledged amounts.

This process should be repeated for all ledgers that are relevant.

Exclude an Account from Periodical Capitalization

If periodical capitalization is used, it is possible to exclude accounts from the capitalization and revenue recognition process. This provides the possibility to exclude some types of expenses and revenues from project capitalization, which is a legal requirement in some countries.

This option is available for accounts with logical account types Cost, Revenues and Statistics. It is possible to indicate if the account should be excluded from capitalization in GL, IL or in both ledgers.

Exclude an Activity from Periodical Capitalization

If periodical capitalization is used, it is possible to exclude project activities from the capitalization and revenue recognition process. It is possible to indicate if the activity should be excluded from capitalization in GL, IL or in both ledgers. The setting cannot be changed if the activity contains any used cost.

This allows project managers to exclude some parts of the project structure from the capitalization process. Cost and revenue from those selected parts will be reported directly to the P&L, where as cost and revenue from all other activities are capitalized based on project settings.

Multiple Code Strings in a Cost Reposting Rule

It is possible to enter more than one code string in the Cost Reposting Rule that will be used when completing a project. The distribution percentage field in the reposting rule indicates the cost percentage to be posted to each code string. The system will validate that the total of distribution percentage is equal to 100 when defining a reposting rule for a project or a project group. A reposting rule for a project group will be defaulted to projects connected to the project group, but can be modified for the individual project. When doing project completion for a project, the project's reposting rule is suggested in the completion dialog, but it can be modified.

Partial Project Completion

Projects may need to be completed partially during the life of the project. This can be achieved by reducing the Completion Amount or Percentage in the Project Completion dialog box. This is only allowed for projects that are set up for periodical capitalization and has a cost reposting rule. It will not be allowed to carry out a partial completion if any of the sub projects of the selected project is financially completed. A partial completion can be rolled back from a right-click option in the Project Completion Details window.

If the partial project completion includes revenues, it is necessary to set up GP18 - Partial Project Revenue Completion in posting control. During the final completion of a project, all partial completions will be rolled back. A new project completion voucher will then be posted for the full completion of the project.

Sub Project Completion

When used with periodical capitalization, it is possible to financially complete part of a project without affecting other parts of the project structure. In order to financially complete a sub project, all activities under this sub project (including the activities on sub subprojects) need to be is status Completed or Canceled. This process can be executed from the Project window in IFS Financials where you can right-click and then click Sub Project Completion. Rollback is available from the Project window as well as the Project Completion Details window. Once this is executed, all sub projects and activities under the selected sub project will be marked as Financially Completed. No changes will be allowed for subprojects and activities that are financially completed.

Subproject completion postings will not be rolled back during a final completion of the project. Final completion will select all non-completed activities and create a completion voucher to reverse the capitalization of those activities.

Change Project Rules When Re-Open Project

A closed project may need to be re-opened to be able to process a one-off transaction like a warranty claim. In support of this and other scenarios, all rules for a project can be changed during the re-open process. If a project is re-opened, it will be logged in the project completion details.

Example: If the original project was set up to capitalize expenses, the project type can be changed to No Capitalization during the re-open process. This allows posting of new expenses directly to the P&L without any capitalization entries.