Joint Venture Accounting Introduction SAP for Oil & Gas Upstream In the capital-intensive Upstream Oil and Gas Industry, operators need the tools which enable them to make informed decisions in the effective management of their operations. SAP for Oil & Gas offers a comprehensive solution to meet these demanding challenges, providing a premier enterprise solution that has been enhanced and refined for upstream businesses. The SAP for Oil & Gas Upstream solution components are specifically designed to meet the demanding needs of upstream businesses, providing integrated processes and tools so you can manage your business better. © SAP AG 2003 SAP for Oil & Gas - Upstream Solution Components SAP Upstream includes the following industry-specific solution components: Production & Revenue Accounting SAP PRA Production Sharing Accounting SAP PSA Joint Venture Accounting SAP JVA Gross Operating Exp / Rev 100 Production Sharing Agreement Cost Object Venture A Definitions Venture A ET1 Cutback EG2 Company Code 50 % Partner B 25 % Partner D 25 % Net Operating Exp / Rev 50 AR / AP AR / AP Partner B 25 Partner D 25 Offshore Logistics Management SAP OLM Shipping & Container Management Purchase Request Purchase Order Container Material Request Material Holding Supply Chain Processing Material Tracking Material Reservation Material Receipt Goods Receipt Outbound Delivery Outbound Shipment Transport Request Goods Receipt Processing © SAP AG 2003 Transport Order Returns Handling Material Issue Oil & Gas Solution Map Edition 2003 Strategic Enterprise Business Analytics Enterprise Management Management Upstream Supply Manufacturing Sales, Service & Marketing Service Station & Convenience Retailing Enterprise Asset Management Business Support © SAP AG 2003 Exploration & Appraisal Supply Chain Planning & Optimization Business Intelligence & Decision Support Development Acquire, Trade & Sell Production Exchange & Throughput Handling Manufacturing Planning Manufacturing Process & Optimization Accounting Scheduling Employee Relationship Management & Workforce Analytics Marketing Inventory Management Batch Manufacturing Joint Venture Management Disposal Primary Distribution & Transport Blending & Packaging Secondary Distribution & Transportation Product Quality Management Marketing Contracts, Sales & Pricing Service Analytics Convenience Retailing Fuels Management Site & Headquarter Accounting Business Analysis & Reporting Specify & Design Procure & Build Operate & Maintain Decommission & Dispose Employee Life-Cycle & Transaction Management Procurement Financial Supply Chain Management Environment, Health and Safety Oil & Gas Solution Map 2003 (Upstream) - 1 Exploration & Appraisal Development Portfolio Risk Analysis Field Development Concept Identification Funding & Budgeting (Partner Determination) (S12) Joint Venture Development (S81) Project Planning (S8) Undeveloped Leasehold Acquisition Development Drilling Surveying, Positioning & Evaluation Development Logistics (S79, S8) Appraisal Drilling & Boundary Determination Facility Construction (S8) Production Reservoir Modeling Depletion Planning Well Servicing Surface Facilities Maintenance (S8) Production Management & Reporting (S79) Secondary/Tertiary Recovery Planning and Management Remote Logistics (S83) Production/Revenue Accounting (S79) Marketing First Purchaser (S79) Asset Transfer (S12) Crude, Gas & NGL Marketing (S79) Environmental Compliance Production Sharing Agreement Handling (S81) Lease/License Administration (S79) Reserves Accounting & Reporting Portfolio Business Performance Analysis (S79) Production Sharing Government Contracts (S82, S81) Production Sharing Cost Recovery (S82, S81) Production Sharing Reporting (S82, S81) Upstream Graphics (S79) Gas Plant Accounting (S79) Lease Fuel Valuation Process (S79) Material Supply Capabilities (S83) Remote Logistics Goods Receipt Processes (S83) Container Management Capabilities (S83) Remote Logistics Temporary Holding Processes (S83) Goods returns Facilities (S83) Goods Tracking Capabilities (S83) Interfaces to Data Capture System (S79) © SAP AG 2003 Disposal Site Remediation (S8) Property Marketing & Due Diligence Preparation (S12) Plug & Abandon Wells & Reporting to State Oil & Gas Solution Map 2003 (Upstream) - 2 Strategic Enterprise Management Business Analytics Business Intelligence & Decision Support Accounting Employee Relationship Management & Workforce Analytics Joint Venture Management Stakeholder Relationship Management (S11) Customer Relationship Analytics (S1, S13) Flexible Reporting (S13) Financial Statements (S12, S11) Information Collaboration (S9) Assessment & Distributions (S81) E-Analytics (S13) Strategy Management (S11) Supply Chain Analytics (S3, S13) Decision Automation & Tracking (S13, S1, S3, S7, S11, S9, S5) General Ledger & Subledgers (S12, S11) Manager Self-Service (S9) Overhead Splitting (S81) Performance Measurement (S11) Financial Analytics (S12, S13) Revenue & Cost Accounting (S12, S11) Employee Self-Service (S10) Suspense Processing (S81) Strategic Planning & Simulation (S11) Human Resource Analytics (S10, S13) Order & Project Accounting (S12, S11) Employee Collaboration (S9) Equity Change Processing (S81) Business Consolidation (S11) Product Lifecycle Analytics (S7, S13) Product & Service Cost Calculation (S12, S11) Strategic Alignment (S10) Cut Back Processing (S81) Reporting & Benchmarking (S10) Cash Call Reclassification (S81) Information Dissemination & Sharing (S13, S99) Performance Monitoring (S13, S11) Planning & Simulation (S11, S13) Ad hoc Analysis (S13) Collaborative Decision Support (S13, S99) Data Collection & Integration (S13) Content Management & Collaboration (S13, S99) Partner Netting (S81) Joint Asset/Inventory Management (S81) JV Partner Auditing (S81) Non-operating Properties (S81) Equity Adjustment (S81) © SAP AG 2003 Why SAP JVA? SAP JVA is the only SAP solution that allows you to track venture expenditures on a venture by venture and partner by partner basis. SAP JVA is fully integrated with: Financial Accounting (SAP FI) Controlling (SAP CO) Asset Management (SAP AM) Materials Management (SAP MM) Production Planning (SAP PP) Plant Maintenance (SAP PM) Project System (SAP PS) allowing you to capture all joint venture transactions by using standard SAP functions. The result is a streamlined workflow and reductions in errors. © SAP AG 2003 Why SAP JVA? Using proven SAP FI-Special Ledger functionality as its basis, SAP JVA ensures accurate calculations and reporting of venture activities on a venture-by-venture basis. SAP JVA supports joint audit data exchange (JADE) reports, online and in real time, reducing audit headcount, time, and expense. SAP JVA ensures full compliance with all standard overhead methods and calculations (US and international). SAP JVA provides complete drill down capabilities for reporting all ventures, all authorization for expenditures (AFEs) tied to JOA's, overhead analysis, cutback, and billing. © SAP AG 2003 SAP JVA Features and Benefits Detailed joint venture data capture in real time Cash calls from partners Partner billing for venture expenses and revenues Overhead calculation, based on the Joint Operating Agreement Allocations of billable and non-billable costs Multi-currency processing Farm-in/Farm-out and Equity Changes © SAP AG 2003 JVA Business Objects: Venture Venture A EQTYPE 1 Engineering Design EQTYPE 2 EQTYPE 3 Construction Production A 2002 33 1/3 B C 33 1/333 1/3 33 1/3 EG1 A B 50 % 25% D 2003 A B 50 % 25% Ventures associate Equity Types and Equity Groups to define a specific joint operation or purpose D 25 % 25 % EG4 EG2 A 25 % A A 75 % 2004 EG3 © SAP AG 2003 C 25% 33 1/3 B C 33 1/3 33 1/3 EG5 D B 25 % 25% C 25 % EG6 JVA Ventures and Cost Objects Venture A New Processing Plant EQTYPE 1 Design Cost centre EQTYPE 2 EQTYPE 3 Construction Production A 33 1/3 B C 33 1/3 33 1/333 1/3 EG1 Valid A 50 % A 33 1/3 B 50 % 25% 3 D B 25% D 25 % 25 % EG2 EG4 A 25 % A A A 75 % C B C 25% 33 1/ 33 1/3 EG3 Construction Project EG5 . Venture A Project EQTYPE 1 Engineering Design EQTYPE 2 EQTYPE 3 Construction Production A 33 1/3 B C 33 1/333 1/3 33 1/3 EG1 Valid A B 50 % 25% D 25 % EG2 75 % C 25% EG3 © SAP AG 2003 B 25% 3 D 25 % EG4 A A A 50 % A 25 % A 33 1/3 B C 33 1/ 33 1/3 EG5 D 25 % B 25% C 25 % EG6 B D 25 % 25% C 25 % EG6 JVA Ventures and Cost Objects Cost Center Asset Internal Order Plant Venture 1 Project Prod Order PM Order © SAP AG 2003 2 Joint Venture Coding for Cost Object Cost CostObject Object Project Cost centre Internal Order Joint Venture Equity Type Recovery Indicator JV Object Type Plant Maintenance Order Production Order Network Order JIB/JIBE Class JIB/JIBE Subclass A © SAP AG 2003 Joint venture coding is derived from Cost Objects in Controlling (CO). Examples include Cost Centers and Orders. Each Cost Object includes the following joint venture fields in the master data: y Joint Venture y Equity Type y Recovery Indicator y Joint Venture Object Type y JIB/JIBE Class y JIB/JIBE Sub-Class A Recovery Indicator Identifies category of a joint venture transaction • • • Indicates whether a particular revenue or expense is shared by venture partners Used to select data for reporting to venture partners Used to distinguish between joint and own revenues and expenditures Recovery indicator assignment & determination: FI User Entry Document Type G/L Account & Cost Element Cost Object Default (Corporate) © SAP AG 2003 Recovery indicators include the following: y Billable (BI) y Corporate (CP) y Non-billable (NB) y Cutback (CB) CO MM Joint Venture Interface Joint JointVenture VentureDocument Document MM FI SD CO Itm Account Cost Obj. Venture EqG RI PM Accounting Interface PS PP HR AM Accounting Document Amount 1 Vendor CC-1 JVI001 A01 BI - 70.50 1 Vendor CC-2 JVI002 A01 BI - 47.00 2 Cost 1 CC-1 JVI001 A01 BI 60.00 3 Cost 2 CC-2 JVI002 A01 BI 40.00 4 Tax CC-1 JVI001 A01 BI 10.50 4 Tax CC-2 JVI002 A01 BI 7.00 JV Interface Itm Account Cost Obj. Amount 1 2 Vendor 3 Cost 1 Cost 2 4 Tax CC-1 -117.50 60.00 CC-2 40.00 17.50 FI DATA GLT0 © SAP AG 2003 Special Ledger Interface JV DATA JVT01 BILLING JVT02 CUSTOM DATABASE Joint Venture Asset Posting - Example JVA derives venture coding for an asset using the cost centre entered on the asset master record Asset Master Vendor Invoice JV Document JV Document Asset Document © SAP AG 2003 In this example, an invoice is posted for the direct acquisition of a joint venture asset. The asset is assigned to the cost centre JV00-B in the time-dependent parameters, and this cost centre is assigned to venture JV1001, so the asset transaction is coded against venture JV1001. The venture coding is copied from the asset entry to the vendor entry. Joint Venture Material Posting - Example JVA derives venture coding for material movements from a special stock cost object that is assigned to a plant and a valuation type (which is optional) associated with the plant. Goods Receipt MM Assignments Material Document JV Document Accounting Doc JV Document © SAP AG 2003 In this example, a goods receipt document is posted to receive stock worth GBP 500 into plant JA01. Plant JA01 is assigned to cost centre JV00-S01. Cost centre JV00-S01 has the following joint venture coding: y Venture JV1001 y Equity Type C y Recovery Ind. BI The resulting joint venture document is coded with cost centre JV00-S01 and all the joint venture coding on that cost centre. Joint Venture Vendor Invoice Posting - Example The expenses are assigned to the JV partners via the cost centre assigned to the expense line items Post Vendor Invoice Cost Centre Assignment JV Document Accounting Doc © SAP AG 2003 In this example, a goods receipt document is posted to receive stock worth GBP 500 into plant JA01. Plant JA01 is assigned to cost centre JV00-S01. Cost centre JV00-S01 has the following joint venture coding: y Venture JV1001 y Equity Type C y Recovery Ind. BI The resulting joint venture document is coded with cost centre JV00-S01 and all the joint venture coding on that cost centre. Cutback Processing Gross The cutback process allocates JV partners' expenses or revenues according to their working interest ownership. Net Operating Exp / Rev 50 Operating Exp / Rev 100 Cost Object RI = Bill Venture A Venture A Company Code 50 % Partner B EG2 25 % ET1 Cutback Partner D 25 % AR / AP AR / AP Partner B 25 Partner D 25 © SAP AG 2003 You use cutback to recover costs from joint venture partners. Cutback posts credits against joint venture costs and charges these costs to venture partners. Joint Venture Billing Payroll Vendor Invoices Orders Internal Allocations Accounts Receivable Costs JV Integration Integration Mgr. Mgr. JV … JV Summary Ledger JV Billing creates various customized billing documents to send to your JV partners Billing Statement Cutback Exp. Suppl JV Billing Ledger Partner Adjustments … JV Integration Mgr. Paid Cash Calls © SAP AG 2003 Invoice Cutback Invoice Cash Calls Partner Payments Expenditure Detail Inv. Suppl Detail Cash Call Processing Equivalent to down payments or pre payments Can be issued for future months (Reclassification) Request and cash receipts carried forward to billing process Integrated with Accounts Receivable and Accounts Payable Cash Call Request: Gross to venture/project Net to venture/project/partner FI Document Partner Shares Venture Partner JV0001 EqG FCurr Amt A01 FCurr Accounts Rec.- Cash Calls NOK Lcurr Amt JVGBU1 600.00 46.74 JV5001 300.00 23.37 JV5101 100.00 7.79 Cash Call Accounts Rec.- Cash Calls Partner C Partner A 100 600 Accounts Rec.- Cash Calls Partner B 300 © SAP AG 2003 Inter-Company Ventures Affiliated Inter-Company Setup FI Document Cutback CO To Affiliate: INVOICE Intercompany Processing FI A/P Cash Call Cash Calls Cutback creates A/P entries to operator on the books of the affiliated partner as configured in SAP JVA and SAP FI Gross cash calls create A/P entries on the books of the affiliated partner, as defined in configuring SAP JVA and SAP FI © SAP AG 2003 Inter-company functions allow you to book inter-company entries on the books of the operating partner and any of its affiliated businesses. By identifying these relationships, through inter-company mappings of accounts and other relevant objects, SAP JVA automates processing of inter-company joint venture transactions. Assessments & Distributions Cost allocations with SAP Controlling and JVA allow you to: Configure allocation rules Substitute the recovery indicator (recovery indicator manipulation) Allocate secondary costs Re-run settlement Transfer costs to operating units Distribution (through original cost element) Internal CO only Allocation (via secondary cost element) Internal CO only Unallocated Costs Cost Object B Cost Object A Materials Cost Object B Materials Materials Internal Labour 40 Internal Labour 100 Internal Labour External Labour 80 External Labour 200 External Labour Staff Salaries Staff Salaries Staff Salaries Rent & Rates Rent & Rates Rent & Rates Light & Heating Light & Heating Vehicles Vehicles Vehicles Repairs & Servicing Repairs & Servicing 40% Light & Heating Travelling Hotels 8 12 Repairs & Servicing Travelling 20 Travelling Hotels 30 Hotels Entertaining Entertaining Entertaining Telecoms Telecoms Telecoms Mail & Carriage Mail & Carriage Mail & Carriage Assessment A Total © SAP AG 2003 140 Total - 350 0 40% Assessment A 140 Total 140 Suspense Processing Suspense functionality supported for: Partner Suspense Equity Group Suspense Project/WBS Element Suspense Specific costs are not charged to a venture but instead posted to suspense accounts for the duration (year & period) a project remains in suspense Set project in suspense Project Suspense Post Costs JVA Project Suspense Accounting Document Accounting Document Selection Company Code GBU1 Venture JV0001 to JV9999 Itm Account 1 O'head 2 O'head Cost Obj. Amount Admin - 50.00 CC-1 50.00 Itm Account Cost Obj. Venture EqG RI Amount 1 O'Head Admin C00001 A01 NB - 50.00 2 O'Head CC-1 JVI001 A01 BI 50.00 3 O'Head CC-1 JVI001 A01 BS 0 Posting Fiscal Year 2002 12 Period Posting Date Options 31.12.2002 Joint Venture Document Joint Venture Document Joint Venture Document Joint Venture Document Itm Account Cost Obj. Venture EqG RI Amount 1 O'Head Admin C00001 A01 NB - 50.00 2 O'Head CC-1 JVI001 A01 BI 50.00 Test run © SAP AG 2003 JVA supports two types of postings to account for changes in venture ownership. An ownership change may occur (i.e., a new equity group is assigned as owner of the JV) in the current period after postings have already been assigned to the old equity group but before Cutback has been run to assign JV/equity group expenses to partners. JVA provides a process that automatically posts a reversal of the debit to the original equity group and reposts the expense to the new equity group. Running this process ensures that all postings to the JV for the period will be assigned to the equity group that owns the venture as of the end of the period. This posting is executed in JVA because the JVA process Cutback will access this new expense posting and post appropriate portions to the partners in the new equity group in FI A/R. An ownership change may be recorded after the close of a previous accounting period. JVA also offers a process to handle the accounting impact of this change in ownership. In this case, the posting is made in FI to the affected partners because processing for the period has already been completed. Overheads International – Parent company overhead US/Canada – Well related allocations Overhead Cost Stepped Rate Rule GBP 140 000 1% GBP 2 800 GBP 500 GBP 250 000 2% GBP 10 000 GBP 10 000 5% GBP 0 © SAP AG 2003 PCO calculates overhead charges for a venture. These charges are uncalculated benefits received from the operator and the operator's group of companies (the parent company). PCO rules are defined for a joint venture company in JVA configuration. They are defined as uplift percentages to be applied to joint costs, based on thresholds. They are called stepped rate rules. Stepped rate rules are defined in JVA configuration with a name, timeframe, description, and steps. Each step has a threshold amount and a rate. The rules are assigned to a JOA on the Overhead tab in the JOA master. Partner Netting Partner netting allows you to clear open items from partner accounts, leaving a single net open item to carry forward to the next accounting period or fiscal year. Partner netting postings are fully customizable Partner A Venture V1 J - Cutback 5 K – Cash Due 4,400 1 L – Cash Called 4,000 4,000 1 4,000 3 6 400 4,400 6 Joint Costs 6 4,000 3 4,000 A/P 2 11,000 Cash Call Invoice Cash Call Payment Invoice Payment Joint Venture Cutback Partner Netting Bank 11,000 2 4,400 5 1. 2. 3. 4. 5. 6. 4 11,000 11,000 4 Venture V1 Partner Netting Itm SEI Account. 1 Amount Partner A 400 2 J J Partner A -4,400 3 L Partner A 4,000 JV Bank JV Rec. under CC (J,L) JV Cash Calls Out (K) Accounts Payable Joint Costs - 7,000 400 0 0 6,600 © SAP AG 2003 Partner netting is optional. You use partner netting to clear open items from partner accounts, leaving a single net open item to carry forward to the next accounting period or fiscal year. Partner netting selects open items by venture, equity group, partner, and (if active) operations month. These are cleared and replaced by a single net open item. Rule, for which open items are netted and how the net item is posted, are defined in posting rules in JVA configuration. Partner netting selects open items by venture, equity group, partner, and (if active) operations month. These are cleared and replaced by a single net open item. Posting rules define which open items are netted and how the net item is posted. Equity Changes & Adjustments Farm-In / Farm-Out A partner joins or leaves a venture Redetermination Partner shares are adjusted to reflect changes in business conditions, such as reserves Funding Currency Change A funding currency is added or removed from a venture Current and prior period equity adjustments handled © SAP AG 2003 Changes in equity occur for the following two main reasons: y Farm-In / Farm-Out y A partner joins or leaves a venture y Redetermination y Partner shares are adjusted to reflect changes in business conditions, such as reserves In each of these cases a new equity group is added to the venture to reflect the changes. The old equity group is retained, so that adjustments to the old shares can be made and history of postings is always available. For similar reasons, a change in funding currency is affected by creating a new equity group, with the funding currency added or removed. When you create a new equity group, documents, which should have been posted to the new equity group, may already have been posted to the old equity group. You could reverse all the incorrect postings and post to the new equity group. However, SAP JVA provides the following two programs to handle these changes: y The current period program handles changes before cutback has been run for the old equity group y The prior period program handles changes after cutback has been run for the old equity group JV Partner Auditing Standard JVA Reports: Gross billable/all by venture/account Remaining cutback by cost object Gross billable/all by cost object Posted suspense overview Gross billable/partner net by cost object Gross non-operated by cost object Gross billable/all by cost object foreign currency Venture/equity group/billing indicator Gross billable/partner net for JIB Partner/billing indicator Billing Reconciliation Extract: Reconciliation Statement Exp. Suppl Expenditure Detail Inv. Suppl Detail Invoice Ledger 4B and 4D JVA Billing Balances Ledger 4A and 4C JVA Balances © SAP AG 2003 Audit support allows you to give non-operating partners detailed accounting transaction records in an electronic format to assist transaction audits. These records are based on operator-defined selection criteria and can be restricted at multiple levels. JADE requirements are also supported. Non-Operating Ventures Online transaction for incoming invoices for non-operated ventures Input forms, defined in JVA configuration, control the layout of the input screens Input form includes the SAP coding block information (account, cost object, asset) Incoming cash calls are handled with the cash call functions Non-operated venture processing is fully integrated with SAP accounts payable functions Invoice Da Tra ta En nsa try ctio n Cash Call R/3 Accounts Payable Nonoperating net share all h C ction s a C nsa Tra © SAP AG 2003 Non-operated venture processing facilitates integrated handling of incoming, non-operated invoices with SAP accounts payable functions. You can record these invoices online. In addition, cash call features are available for non-operated ventures at the venture and project level. Cash and Banking Main Features Balanced books by venture Venture specific bank accounts v. central disbursement account Funding currency defined for each venture Bank reconciliation and switching Exchange differences for each venture © SAP AG 2003 Balanced Books By Venture Balanced books by venture allows you to produce balanced financial statements on a venture by venture basis. If a document without balancing-entries-by-venture is posted to the joint venture ledger, the data capture process creates an inter-venture booking, to balance the document by venture. Bank Account Switching Bank account switching is common practice outside North America. Large ventures are funded from one or more dedicated venture bank accounts. Depending on the venture, SAP JVA determines the bank account from which an invoice is paid. SAP JVA also produces correspondence, notifying the bank to make all required transactions for the movement of cash between accounts. In addition, bank account switching produces all required settlement documents, and can calculate all applicable interest. Other Functions: (mention if time permits): Asset and Material Transfer Asset and material transfer capabilities allow you transfer assets and materials to joint venture properties at the current replacement price, rather than at historical cost. Net Profit and Carried Interest Profit Partners Net profit and carried interest profit partners allow you to allocate payments and a net profit interest to a non-operating partner, and to set up a carried interest arrangement, if necessary. mySAP JVA Key Benefits Business Drivers: Maximize Assets, Minimize Overhead Integration with financials, materials management and asset management streamlines workflow and greatly reduces errors . . . traditional packages have multiple charts of accounts, interface files that are passed between modules via batch processing (weekly, monthly, annually). Supports industry-standard JADE (Joint Audit Data Exchange) reports, on-line and in real time . . . reduces audit headcount, time and expense. Full compliance with all standard overhead methods and calculations (US and international) Complete drill down capability for reporting: all ventures, all AFEs tied to JOA, overhead analysis, cutback and billing. © SAP AG 2003
