Land Rental

[Former Member]

Hi,

I would like to ask on how to achieve computation of payment for land rentals. Let us say that we have a contract with the land owner to rent his land, the rate is 50,000 per year now after 5 years the rate will go up to 60,000 per year then every after 2 years the rate will keep increasing by 1500. How will this forecasting be possible in SAP? Is this possible via fixed asset or is there any other way?

Thanks,

Emil

[narnei · Accepted solution]

Hi Emil Guilas,

You can handle this scenario in two methods through SAP R/3 :

Method 1 : (Through FICO module.)

You can take it as a FIXED ASSET ( Create Asset master – AS01) in SAP – FICO  module.

Try to assign the period of lease in period as a period of life for that asset.

For any asset we have to give some value (that value you can make it as lease in / Rent value) / any thing else more then I rupee/ doller.( based on currency ).

After 5 years  also you continue the same process to assign the escalation values for that asset.

One more advantage of this process is By using the asset master record number of FICO we can procure any material through SAP MM ( Material Management module ) in future.

For more details you can get in touch with your FICO & MM consultants.

Method 2 : (Through SAP - REFX module.)

If you have SAP – REFX in use in your system you can create a RENTAL contract ( T-CODE – RECN ) for this contract and you can add the conditions using the time lines.

Here you have the flexibility to manage the time lines / amounts  / No. of partners / postings to cost centers / linking to proper rental objects / fetching reports accordingly  according to your requirement.

If you have lot of properties in this manner to dealt better to follow / implement  SAP REFX module which have so many options to dealt  with real estate scenarios.

Attached screen shot of real estate ( REFX ) Contract conditions FYI.

I hope this may helps you.

Thanks,

Subbarao.Narne

[Former Member]

Hi Andre and Subbarao,

Good day!

Thank you very much for the information you gave me for my issue.

[andre_nakratzas]

Hi Emil,

It depends a bit on the fact if you know the increase of the amounts/percentages in advance or not. in your example you mention:

1. 50,000 per year for 5 years

2. 60,000 per year 5-7 years

3. 60,000 + 1,500 every 2 years

For 1 and 2 you can set this up in advance on the contract using the time dependency of the condition type. For 3 you would generally use an adjustment rule to periodically (every 2 years in this case) adjust the condition amount.

Additionally if you are interested in the new IFRS compliancy rules in regards to lease accounting you might want to have a look at the following notes:

http://service.sap.com/sap/support/notes/1682715

http://service.sap.com/sap/support/notes/1933458

Regards, Andre

[Former Member]

Hi Andre,

Thank you for your response, I do believe that IFRS is a good way to handle this but implementing this might be costly and there are no people here who knows this process. For the first option that you gave us, just a few clarifications. Since we have the land currently tagged as an asset, all we need to do is create a condition type which contains this kind of computation via time dependency then create a contract(I should speak to an MM specialist about this right?). Can you explain further on how to achieve the 3rd requirement?

Thanks,

Emil

[andre_nakratzas]

Hi Emil,

Since you posted this question on the Real Estate Management page I (wrongly) assumed that you were using the SAP Flexible Real Estate Management (RE-FX) module and were referring to a Real Estate Contract.

In case your company is planning to use the RE-FX module in SAP then you can use a condition type on the Real Estate Contract in combination with the rent adjustment functionality.

However my understanding is now that you use FI-AA to record your asset (even though you don't own the asset, correct?) and that you are planning to use MM to create a Procurement Contract (instead of a Real Estate Contract in RE-FX). In that case the Procurement Contract can also show the financial commitment and probably allows you to input the fixed value increase to 60,000 but I'm not sure about the fixed 1,500 increase every 2 years. MM is not my area of expertise so I would suggest to speak to an MM consultant.

Whether or not you want to use RE-FX to manage your leases would really depend on the volume. RE-FX can support various scenario's for Lease-in (expenditure), Lease-out (revenue), Internal Lease-in/out (e.g. Cost Centre) and support Room Reservation functionality and allows you to fully set up you Real Estate portfolio including integration with GIS using our SAP GEO.e solution. Again this depends on the overall requirements in this area, but in case the requirements are very straight forward an implementation can be done very quickly.

Regards, Andre

[Former Member]

Hi Andre,

Sorry for the confusion, actually our users just wanted to know if this scenario was possible using fixed assets. Will it be possible to do this solely by using fixed assets or do we have to implement RE-FX to make this possible.

Thanks,

Emil

[andre_nakratzas]

Hi Emil,

As far as I know you will not be able to handle this only in asset accounting. In this scenario we are not dealing with an asset but a commitment that you want to make visible in your administration. MM could provide a solution here but we are looking at multi year commitments with adjustments so you would have to set that up manually in MM on the PO. Also are you looking at annual commitments or total commitments for the full duration of the lease? Is it a lease with a fixed end-date or not, and how do you want administer renewal options of the lease (10 years, plus 2 options for 5 years). It is important to get all these requirements first before you can determine a solution.

Regards, Andre