Interest Calculation Process in Projects

Interest calculation in SAP Investment Projects involves the process of determining and applying
interest on the capital invested in a project over time. This calculation is crucial for accurately
assessing the costs and financial performance of long-term investment projects. Here's a
detailed explanation of how interest calculation works in SAP Investment Projects:

Key configuration Steps

1. Define Interest Indicator

In this IMG activity, you create the interest indicator and determine the interest calculation type. A distinction is
drawn between two interest calculation types:

• Account balance interest calculation (S)

With this type of interest calculation, the line items are first balanced and then interest is paid on the
balance.
On projects, internal orders, capital investment orders, plant maintenance orders, and service orders,
only account balance interest calculation is used.

• Item interest calculation (P)

With this type of interest calculation, interest is paid on each individual payment transaction.

Activities

Create the required interest indicators.

Further notes

Furthermore, the most important determinations for the interest are stored for an interest indicator in the
general and time-dependent conditions. These include, among other things, rules according to which interest is
calculated, and interest rates.
 Interest Calculation Process in Projects
2. Define general terms

In this IMG activity, you determine the general conditions for each interest indicator. For all accounts which are
part of the automatic interest calculation, you must specify the calendar type.

At this point, you can also:

• determine the minimum/maximum amount as of which interest calculation should take place

• set the characteristics controlling the interest calculation indicator

Activities

1. Specify the calendar type for each interest calculation indicator.

2. Determine the controlling characteristics for each interest calculation indicator according to your
requirements.
 Interest Calculation Process in Projects
3. Define Reference Interest Rates

Define your reference interest rates by entering a reference interest rate as a key and a meaningful name. All
other fields are purely informative.

Activities

1. Define your reference interest rates in this configuration step.

2. In the Enter Interest Rates configuration step, specify the interest rates for the reference interest
rates.

4. Maintain Values for Reference Interest Rates

In this activity, you specify date-specific interest rates for the reference interest rates.

Activities

Specify the interest rates for your reference interest rates.

 Interest Calculation Process in Projects

5. Define Time-Dependent Terms

In this IMG activity, you store the interest rates or reference interest rates for the key fields: Interest
Indicator, Currency and Amount from. You can also do this dependent on the amount.

You must store interest rates for credit and debit interest.

You must define amount-dependent interest rates or reference interest rates together for each movement type
and Date from. The reference interest rates or interest rates stored for each Date from and movement type (for
example, credit/debit-interest account balance interest calculation) determine the reference interest rates valid
from this point in time and their grading, based on the amount.

You can also store an interest rate independently of a reference interest rate.

Note

All data stored before this point in time is considered to be no longer valid after this point.

Consequently, when you make a change to the individual rates, you must always maintain all the appropriate
rates for this movement type, interest indicator, and currency in the Date from field.

• To continue to obtain interest-relevant values after switching to the euro, change the currency in the
table to EURO.

Ensure that the Valid from date remains at the date before the changeover to the euro. You must do
this to be able to completely transfer the entries from the time before the changeover.

Activities

1. Per interest calculation indicator, currency, and Date from, define:

o The movement type identification code and

o A reference interest rate (for example, discount rate) and/or

o A surcharge

To store an interest rate independently of a reference interest rate, do not make an entry in
the Reference interest rate field, and enter a positive value in the Surcharge field.
2. If necessary, also enter amount-dependent reference interest rates/ interest rates per movement
type and Date from.

Further notes
In the implementation guide for Accounting, under Business Volume -> Interest Calculation, define the

• Movement type

• Reference interest rate

Interest Calculation Process in Projects
 Interest Calculation Process in Projects
6. Create interest profile

In this IMG activity, you define the key and description of an interest profile and enter the basic settings for the
interest calculation logic.

In the detail screen, you stipulate the following:

• Hierarchy processing

Derive automatically
Hierarchy process for the interest calculation is dependent on the project type. The interest logic and
profile are inherited top-down within the hierarchy. The system distinguishes between the following
project types:

o Capital investment project

Balances are formed and the interest calculation updated for each WBS element for which a
capital investment profile has been maintained. You must first settle assigned orders and
networks to the WBS element if you want them to be included in the interest calculation.

o Customer project

Balances are formed and the interest calculation updated in the billing element, taking
account of all the lower-level objects in the hierarchy.

o Cost project

Balances are formed and the interest calculation updated for each account assignment object.
Calculate interest separately
This is a manual indicator which overrides the automatic derivation in hierarchy processing.
The system calculates interest for the object. Lower-level items without their own interest
profile are not included. Lower-level items do not inherit the interest profiles in the higher-level
objects.
No interest calculation
This is a manual indicator which overrides the automatic derivation in hierarchy processing.
The system does not calculate interest for the object and no attention is paid to lower-level
items.
The manual interest calculation settings override the interest calculation derived automatically.

• Document selection

o Line items

The interest calculation is based on line cost, revenue, and payment line items as of the
posting date.

o Totals records

The interest calculation is based on the cost, revenue, and payment totals records. Basic
values are dated, for interest calculation purposes, as of the middle of the period.

Activities
 Interest Calculation Process in Projects
1. Define keys and a description for an interest profile.
2. Maintain the detail screen for the interest profile.

Further notes

The system only calculates interest for a project or an internal order if you have defined an interest profile.

You do this in the control data as follows:

• Standard project definition

In the menu for basic data, choose Standard structures -> Standard WBS -> Change -> Detail ->
Control.

• Project definition

The system defaults the entry to the WBS elements.

• WBS elements

In the operative structures menu, choose Work breakdown struc -> Project definition or Structure (for
WBS elements) -> Change -> Detail -> Control.

For internal orders, you can store the interest profile in:

• Model order

To do this, choose Mantain Interest Profile in Model Orders.

• In the master data for the relevant internal order

To do this, go to the internal orders menu and choose Master data -> Order -> Change.
 Interest Calculation Process in Projects

7. Enter Detail Settings for Interest Profile

In the interest profile, you can store the following parameters for each interest indicator and currency:

• Conditions for the project interest calculation:

o Time elapsed since the first posting (minimum duration) and from which interest is calculated
for the project or internal order

o Threshold value (of the costs accumulated on a project or internal order) as of which interest
is calculated on the project/internal order

• Period control for the compound interest calculation

• Depreciation area for the interest base

Activities

Store the rules for the interest calculation.

Further notes

You have the following options for assigning an interest profile to a project:

• As a default value in the Project System Implementation Guide, for:

o The standard project definition

 Interest Calculation Process in Projects
o The project definition

• In the Project System application menu

If no interest profile is stored in the project profile, you can store an interest profile in the control data
for:

o Standard project definition

In the Basic Data menu, choose Standard structures -> Standard WBS -> Change -> Project
definition -> Details -> Control.

o Project definition

In the Operative Structures menu, choose Work breakdown struc -> Change -> Details ->
Control.
The entry is copied into the WBS elements as a default value.

o WBS elements

In the Operative Structures menu, choose Work breakdown structure -> Single element ->
Change -> Details -> Control.

You can assign an interest profile to an internal order in one of the following ways:

• In the model order:

To do this, choose Maintain interest profile in model orders.

• In the master data of the relevant internal order:

To do this, go to the Internal Orders menu and choose Master data -> Order -> Change.
Further notes

The planned interest calculation takes no account of the minimum duration and threshold value specifications.
 Interest Calculation Process in Projects

8. Define Interest Relevance

In this IMG activity, you define value category relevance for an interest profile/interest indicator combination.
You can do this for:

• Costs/revenues

• Payment data (down payments, payments) (not in internal orders)

• No interest calculation

The value category consists of a range of cost elements and/or a range of commitment items.

Note the following:

Cost elements/commitment items not assigned to value categories are not included in the interest calculation.

For the purpose of the interest calculation, you must create interest in the form of cost elements. You can thus
use the "None" indicator to control whether compound interest is calculated in an interest run.

Example

You want to calculate interest on payments and internal activities.

 Interest Calculation Process in Projects
• You want to calculate interest on the value categories for internal activities.

Select the Cost indicator for the value category.

• For external activity value categories, you want to calculate interest for the payment data (down
payments and payments on the debit side and on the credit side) but not for the associated costs.

Select the Payments indicator for this value category.

Activities

Stipulate the interest relevance.

Further notes

To avoid data problems, stipulate the interest relevance for every interest profile/interest indicator combination.
If you do not maintain the interest indicator field, there is a wild card effect.

9. Specify Default Interest Profiles for Project Definitions

In this step, you assign the interest profile to the project profile.

Prerequisites

You must have maintained a project profile and an interest profile.

Further notes

The interest profile is copied into the project definition control data as a default value when you create a new
project.
 Interest Calculation Process in Projects

10. Define Posting Specifications

In this step, you define the posting profiles required for the interest calculation. In the posting profile, you
configure accounts determination for each business transaction you need for the interest calculation.

This step is necessary if interest is to be recorded correctly in Controlling (CO).

Further notes

For technical reasons, the interest must first be recorded in the profit and loss accounts in FI. As the posting
profile leads to both a debit posting and a credit postings, the resulting interest balance in FI is zero.

• Change the currency in the table to Euro so that you continue to obtain interest-relevant values after
switching to the euro.

This changeover is not necessary if you have already chosen a currency-independent setting by
enter * in the relevant field.

Activities

You need two business transactions for the interest calculation - the interest earned posting and interest paid
posting. You can maintain accounting determination so that it differs in the following characteristics for each
business transaction:

• Company code

• Business area

• Interest indicator

Maintain at least one posting profile for the interest earned posting (business transaction 1000) and at least one
for the interest paid posting (business transaction 2000). Proceed as follows:

1. Choose "Edit -> Create" and create the posting profiles you require.
If you do not want the account determinations to vary in respect of the characteristics mentioned
above, enter the masking character "+".

Masking Example
 Interest Calculation Process in Projects
Charact. General acct detmn Specific acct detmn
Business transaction 1000 1000
Company code 0001 0001
Interest indicator + 01
Business area + +
2. Choose Symbols to create the account symbols for business transactions of the same type.
The account symbols are used to group similar business transactions (such as interest earned
postings). The account symbols assign the transactions to a G/L account. This makes account
determination flexible in cases where the postings to revenue and expenditure accounts are different.
3. Choose Accounts.
4. In the dialog screen, enter the chart of accounts to which the account determination is to apply, then
choose "Continue".
This brings up the screen "Maintain Account Determination: Accounts".
5. Assign a G/L account to each account symbol.
You can make this assignment currency-dependent.
6. Choose "Profile" to proceed to the "Posting Profile" view. Assign the account symbols to the debit
and credit accounts.
7. Use the "Goto" menu to choose the document type in which the interest posting is made.
8. Check the account determination by choosing Goto -> Simulation.

Further notes

Account determinations differentiated by company code, business area, or interest indicator take precedence
over account determinations which are not differentiated.

You must not define any cost elements for the G/L accounts to which interest earned is posted. If you do, the
system balances the interest postings off to zero.

If you are using Project Cash Management, a commitment item with a financial transaction other than 30 must
be defined for the G/L accounts specified in the account symbol, otherwise the interest would be recorded in
Project Cash Management.

Examples

You have maintained the following posting profile:

Business transaction: 2000 Interest indicator: +

Company code: + Business area: +
Debit posting 1 Interest paid
Credit posting 2 Correction: interest paid

The following G/L accounts are assigned to the account symbol:

Account symbol G/L account

1 483000
2 222000

The system records the interest paid unter G/L account 483000 and the correction under G/L account 222000.
This ensures that the system shows no interest paid in FI.

For the interest paid to be recorded in CO, you must maintain cost element 483000.
 Interest Calculation Process in Projects
You must not maintain a cost element for G/L account 222000. Otherwise, the interest earned balance in CO is
also zeroed out.
Interest Calculation Process in Projects
 Interest Calculation Process in Projects
11. Testing of Configuration
a. Annual compound Interest setup

Create project (CJ01)

Create vendor Invoice on Level 2 WBS (FB60)

Posting in April
 Interest Calculation Process in Projects
Project Cost report (CJI3)

Now we will Run Interest calculation for April month (CJZ2)

Formula for Interest Calculation = (rate of Interest/365) *(No of days) *(Total Balance in Particular
month)
 Interest Calculation Process in Projects
Project Actual Cost report.

Total Interest calculation

Rate of Interest = 10%

No of days = 30 (April month)

Total Cost = 10000 euro

Interest calculated = (0.1/365) *30*10000

= 82.19 EURO
 Interest Calculation Process in Projects
What if we calculated Interest in may Month?

Additional 10000 EURO Cost posted on WBS in may month

Let’s calculate Interest Again for may month (CJZ2)

 Interest Calculation Process in Projects

Total Interest calculation

Rate of Interest = 10%

No of days = 31 (May month)

Total Cost = 20000 euro (excluded already posted interest cost as we are using annual compound)

Interest calculated = (0.1/365) *31*20000

= 169.86 EURO
 Interest Calculation Process in Projects
b. Monthly compound interest

Let’s Change Compound Interest period to monthly in (OPIB)

Let’s run the process again on new WBS element

New project CJ01)

 Interest Calculation Process in Projects
Post a vendor invoice in April month

Project Actual Cost report (CJI3)

Let’s run the Interest calculation Again (CJZ2)

 Interest Calculation Process in Projects

Actual Cost report (CJI3)

Total Interest calculation

Rate of Interest = 10%

No of days = 30 (April month)

Total Cost = 10000 euro

Interest calculated = (0.1/365) *30*10000

= 82.19 EURO
 Interest Calculation Process in Projects
What if we calculated Interest in may Month?

Additional 10000 EURO Cost posted on WBS in may month

Project Actual Cost report (CJI3)

 Interest Calculation Process in Projects
Let’s run the Interest calculation Again (CJZ2)

Project actual cost report (CJI3)

 Interest Calculation Process in Projects

Total Interest calculation

Rate of Interest = 10%

No of days = 31 (May month)

Total Cost = 20082.19 euro (included already posted interest cost as we are using monthly compound)

Interest calculated = (0.1/365) *31*20082.19

= 170.56 EURO