Joint Venture Accounting (JVA)

Joint Venture
Accounting (JVA)

 SAP AG 2002
JVA Workshop

Day 1 Basics
1. Introduction
2. Accounting Principles
3. Master Data
4. Integration
Day 2 Day-to-Day Processes
1. Data Entry
2. Payments
3. Operated Accounting
4. Non-Operated Accounting
Day 3 Periodic Processes
1. Cutback
2. Foreign Currency Valuation
3. Month End Processing

Day 4 (half day) Reporting

1. Billing
2. Reporting
3. Planning
4. Year End

Day 4 (sec half) Configuration

1. Customizing #1
Day 5 (first half) Configuration
1. Customizing #2

 SAP AG 2002
JVA Unit 1

Basics
1. Introduction
2. Accounting Principles
3. Master Data
4. Integration

 SAP AG 2002
JVA 1.1

This section introduces the concept of

JVA.

Introduction

 SAP AG 2002
What are the Oil and Gas Industry processes?

EXPLORE DEVELOP PRODUCE REFINE MARKET SELL

 SAP AG 2002
Why Are Joint Ventures Used?

The Upstream Oil and Gas Industry

Is characterised by:

• High Risk
• Large Investment
• Long Term Commitment

To share the risk Companies form

Joint Ventures

 SAP AG 2002
Who Runs a Joint Venture?

Joint Ventures
Non Operator Manage the work
Partner A JV#1 Exploration Plan and run venture activities
Maintain accounting records for
venture
35%
Report venture activity to
65% partners
Share income or product

30% JV#2 Construction

40%
30%
Non Operator
Partner B Operator
JV#3 Production
70% 30%

 SAP AG 2002
SAP JVA

Operating Partner
• Manage the venture on a day-to-day
basis
• Maintain venture accounting records
• Calculate partner shares of venture
expenditure and revenue
• Report venture activity to partners

Non-Operating Partner

 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 2002
JVA 1.2

This section describes

the accounting principles
behind SAP JVA.

Accounting Principles

 SAP AG 2002
T Accounts

Account name
Debit Entry Credit Entry

Partner Account JV Costs

1 150 150 1
50 2

Final Balance 100 150

of Account
Notes JV Bank
2 50
1. Partner share of
venture costs
2. Settle partner account 50

Asset account Liability account Capital account

Increase Decrease Decrease Increase Decrease Increase

 SAP AG 2002
Operator Oriented Accounting

Company A Company B Notes

Partner B Venture Account 1. Company A incurs
2 40 40 3 costs running the
40 4 4 40 venture.
2. Company A
calculates company
B’s share of costs
Venture Bank Own Bank (40%).
100 1 40 4
3. Company B
4 40
accounts for its own
share of costs.
60
4. Company B
reimburses company
Venture Costs Venture Costs
A.
1 100 3 40
40 2

60

 SAP AG 2002
Partner Oriented Accounting

Operating Co. Company A Company B

Notes
Venture
1. Company A incurs
Partner A 60% Venture Account Venture Account
costs while running
2 60 60 3 40 4
the venture.
60 5 5 60 6 40
2. Company A
calculates the share
of costs for Partner A
and Partner B.
Partner B 40%
2 40
3. Company A accounts
for its own share of
40 6
costs.
4. Company B accounts
for its own share of
Venture Bank Own Bank Own Bank costs.
100 1 60 5 40 6 5. Company A
5 60 reimburses the
6 40
venture.
60 40 6. Company B
reimburses the
Venture Costs Venture Costs Venture Costs venture.
1 100 3 60 4 40
60 2
40 2
60 40

 SAP AG 2002
Operator / Partner Accounting

Company A Company B
Notes
Venture Company
1. Company A incurs
Partner A 60% Venture Account Venture Account
costs running the
2 60 60 3 40 4
venture.
60 5 5 60 6 40
2. Company A
calculates the share
of costs for Partner A
and Partner B.
Partner B 40%
2 40
3. Company A
accounts for its own
40 6
share of costs.
4. Company B
accounts for its own
Venture Bank Own Bank Own Bank share of costs.
100 1 60 5 40 6 5. Company A
5 60 reimburses the
6 40
venture.
60 40 6. Company B
reimburses the
Venture Costs Venture Costs Venture Costs venture.
1 100 3 60 4 40
60 2
40 2
60 40

 SAP AG 2002
Billing Basis

Expenditure Based
Invoice Based
Cash Based

 SAP AG 2002
Billing Basis: Expenditure Based

Venture JV Billing Month 1 Notes

Expenditure 1. Expenditure is
Expenditure 100
Billable

incurred in
1 100
Month 1.
2. An invoice is
100 Total 100 received in
Month 2.
GRNI Accruals 3. An invoice is
100 1 JV Billing Month 2 paid in Month
2 100 3.
Expenditure 0
Non-Billable

Vendor
100 2 Total 0
3 100

JV Billing Month 3

Venture Bank
Expenditure 0
100 3

100 Total 0

 SAP AG 2002
Billing Basis: Invoice Based

Venture JV Billing Month 1 Notes

Expenditure 1. Expenditure is
Expenditure 100 incurred in
1 100
GRNI Accruals -100 Month 1.
2. An invoice is
received in
Billable

100 Total 0
Month 2.
GRNI Accruals 3. An invoice is
100 1 JV Billing Month 2 paid in Month
2 100 3.
Expenditure 100
GRNI Accruals 0
Vendor
100 2 Total 100
3 100
Non-Billable

JV Billing Month 3

Venture Bank
Expenditure 0
100 3
GRNI Accruals 0

100 Total 0

 SAP AG 2002
Billing Basis: Cash Based

Venture JV Billing Month 1 Notes

Expenditure 1. Expenditure
Expenditure 100 incurred in
1 100
GRNI Accruals -100 Month 1.
Vendor 0 2. Invoice
100 Total 0 received in
Month 2.
GRNI Accruals 3. Invoice paid
Billable

100 1 JV Billing Month 2 in Month 3.

2 100

Expenditure 100
GRNI Accruals 0
Vendor Vendor -100
100 2 Total 0
3 100

JV Billing Month 3
Non-Billable

Venture Bank
Expenditure 100
100 3
GRNI Accruals 0
Vendor 0
100 Total 100

 SAP AG 2002
JVA 1.3

This section describes the

master data used in JVA.

Master Data

 SAP AG 2002
Joint Operating Agreement (JOA)

JOA

Formal contractual agreement

• Specifies conditions for joint activities

• Defines partner shares (working interests)
• Describes rules for sharing profit and loss
• Specifies penalties

 SAP AG 2002
Joint Venture

Joint Venture

Definition of joint activities

• Defines role of own company in venture

• Assigns partner shares and validity
• Specifies reporting requirements
• Defines taxation rules
• Defines accounting procedure

 SAP AG 2002
Equity Group

Equity Group

Definition of partner shares and roles

• Single operating partner and share

• One or more non-operating partners and shares

 SAP AG 2002
Joint Venture Partner

Partner

Definition of entity participating in a joint venture

• Can participate in one or more ventures

simultaneously
• Linked to customer accounts receivable (A/R)
sub-account for non-operating roles
• Linked to vendor accounts payable (A/P) sub-
account for operating roles

 SAP AG 2002
Joint Venture Partner: A/R and A/P
Customer
JV Partner

Vendor

• Customer record required for all partners

• Vendor record required for all partners
• Link customer and vendor using Account
control fields

 SAP AG 2002
Inter-Company Partners

SAP Company GBU1

Partner Inter-Co Code Partner Name
JV5001 Caledonian Oil
JV5101 Troll Oil
JVGBU2 GBU2 SAP Company GBU2

Customers
JV5001

JV5101
SAP Company GBU2
JVGBU2
Partner Inter-Co Code Partner Name
JVGBU1 GBU1 SAP Company GBU1

Customers Vendors

JVGBU1 JVGBU1

 SAP AG 2002
Master Data Structure

JOA

Venture 1 Venture 2 Venture 3

Equity Group A Equity Group A Equity Group E

Equity Group B Equity Group C

Equity Group D
Operator
Operator
Partner 1
Partner 1
Partner 2
Partner 2
Partner 3

 SAP AG 2002
JOA Assignments

JOA

Equity Group A
Venture 1 DATE

Equity Group B

Venture 2 DATE
Equity Group C

Equity Group D
Venture 3 DATE

Equity Group E

 SAP AG 2002
Equity Type

Equity Type

Definition of activity in a joint venture

• Represents time-independent aspect of

venture and equity group
• Provides link between venture activity and
equity group
• Activity may be actual or logical

 SAP AG 2002
Assignment of Equity Group to Equity Type

Venture 2

March April May

Equity Type 1 Equity Group A Equity Group C

Equity Type 2 Equity Group A

Equity Type 3 Equity Group A Equity Group D

 SAP AG 2002
Assignment of Equity Group to Partners

Venture 1 Company A

Equity Group A

60% Operator

40% Partner 1 Customer A

Equity Group B
Customer B

40% Operator

40% Partner 1

20% Partner 2

 SAP AG 2002
Data Model

Cost Object

Plant
Cost centre
Company Code
Valuation
Type
WBS Element

Order

Network
JOA Joint Venture

Date
Equity Group Equity Type

Customer Account

Partner Equity
Partner Recovery
Share
Indicator

Vendor Account

G/L Account

 SAP AG 2002
Exercise 1.1: Review Joint Venture Master Data

1. Display joint venture partners

2. Display a JOA
3. Display a joint venture

 SAP AG 2002
JOA Class

JOA Class is used to group JOAs

Company Code
Joint Oper. Agreement JOA Class

JOA Class 01 Operated

02 Non-Operated
CP Corporate

Operated JOAs
Corporate JOAs
JOA 1 Non-Operated JOAs
JOA 2
JOA 3 JOA 5 JOA 8
JOA 4 JOA 9
JOA 6
JOA 7

 SAP AG 2002
Maintain a JOA

You cannot change the

equity group if JVA
documents exist.

You can assign an

alternative address to
each area.

The applicable venture type

is determined automatically.

 SAP AG 2002
Joint Venture Class

JV Class is used to group joint ventures

Company Code
Joint Venture JV Class

JV Class 01 Operated
02 Non-Operated
CP Corporate

Operated Ventures
Corporate Ventures
JV 1 JV 2 Non-Operated Ventures
JV 3 JV 5 JV 8
JV 4
JV 6 JV 9
JV 7

 SAP AG 2002
Venture Type

• Operated not taxed

• Operated taxed
• Non-operated, on-billed
• Non-operated
• Corporate

 SAP AG 2002
Maintain Joint Venture
The Posting Method is
used to determine the
accounting treatment of a The assignment from
venture. equity type to equity
group is based on the
document date.

The Funding Group represents a

group of ventures that are funded
from the same set of bank
accounts.

 SAP AG 2002
Recovery Indicator

Recover
y
Indicato
r

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

 SAP AG 2002
Use of Recovery Indicator

1. Basis for sharing Material Consumed

Billable Balances JV Billing
partner costs Expenditure
100 BI - Billable
(cutback)
20 CUTBACK
NB - Non-Billable
30% 33 110
10 AD - Adjustments

33- CB - Cutback
Cutback posting
Gross Exp.

2. Basis for Material Consumed

operational 100 Venture (Gross) 130
BI - Billable
reporting Reporting
(Operator 20 NB - Non-Billable Net Exp.
Oriented)
10 AD - Adjustments
Own (Net)
33- Reporting 97
CB - Cutback

 SAP AG 2002
Exercise 1.2: Create Joint Venture Master Data

1. Add a new partner

2. Create a JOA
3. Create a joint venture

 SAP AG 2002
JVA 1.4

This section describes the integration

between JVA and other SAP R/3
components.

Integration

 SAP AG 2002
What is the JVA Module?

 Set of Special Ledgers comprising Line Item and Balance tables fed
almost entirely from standard SAP modules

 JVA Coding block is based on Joint Venture structures but also contains
the key structures from the standard financial and costing modules.

Coding Company Equity Recovery Cost Profit

Venture Account
Block Code Group Indicator Object Center

 JVA captures ALL financial and cost postings real time from standard
modules such as FI, CO & MM and converts them to JV format

 It provides new processes specific to E & P and also amends standard

ones to be compatible with the JV structures

 It provides a full Trial Balance by Venture and Equity Group

 Effectively a new Finance Reporting Module

 SAP AG 2002
Integration

AM
MM
FI
SD

CO
PM Coding
Accounting
Splitting
Interface
PS Clearing
Accounting
Document

HR

JV Interface JV
Document JV
Database

 SAP AG 2002
Reporting with JVA

MM AM PM PS

Open Item Mgt Cost Allocations

AP, AR etc Management
Bank & Cash FI CO Reporting
Budgets & Plans

Financial ledger FINANCIAL Costing Ledger

DOCUMENT
Account Account + Cost Object
Finance Reports
JV Processes
Cost Reports
JVA JV ledger
Budgets & Plans
Acct + C/O + Venture
Partner Billing PSA
Cash Statements Reporting
JV Billing ledger BILLING Invoices
PSA ledger
PSA
 SAP AG 2002
JVA Data Capture

CO
FI PCA JV
PS

FI Balance Sheet

FI Cost and Income

CO Cost allocations

Captured Not Partly

Captured Captured

 SAP AG 2002
JVA Activation

 The JVA module is activated at Company Level in SAP - specify:

 Region -
 USA
 Canada
 International
 Billing Basis –
 Cash
 Expenditure
 Invoice
 Banking arrangements – Venture Bank Accounts and Switching
 JVA Cutback Model -
 Standard
 Operator as Partner model
 SAP AG 2002
Joint Venture Coding for Cost Object

Cost Object

Project Cost centre Internal Order

Joint Venture
Equity Type
Recovery Indicator
JV Object Type

Plant Production Network JIB/JIBE Class

Maintenance Order Order
Order JIB/JIBE Subclass A

 SAP AG 2002
Joint Venture Coding Fields

Accounting

Joint Venture
Equity Type
Recovery Indicator
Joint Venture
Equity Type
Recovery Indicator Control
JV Object Type JV Object Type
JIB/JIBE Class
JIB/JIBE Subclass A
Reporting

JIB/JIBE Class
JIB/JIBE Subclass A

 SAP AG 2002
Accounting Documents
FI Document

Vendor Invoice

CO Document

JV Document
JV Document

 SAP AG 2002
Joint Venture Coding for Assets

Joint Venture
Fixed Asset Owning Cost Equity Type
centre
Recovery Indicator
JV Object Type
JIB/JIBE Class
JIB/JIBE Subclass A

 SAP AG 2002
Joint Venture Asset Posting

Accounting options for capitalisation:

1) Via a WBS or Order :

Accounts Receivable Accounts Payable WBS Assets

100 Invoice 100

30 Cutback 30
70 Settlement 70

2) Direct to the Asset Accounts :

Accounts Receivable Accounts Payable Assets

100 Invoice 100

30 Cutback 30

70

 SAP AG 2002
Joint Venture Asset Posting

Asset Master

Vendor Invoice

JV Document

JV Document

Asset Document

 SAP AG 2002
Joint Venture Coding for Material

Project

Plant

Joint Venture
Equity Type
Cost centre
Recovery Indicator
JV Object Type
Valuation JIB/JIBE Class
Type
JIB/JIBE Subclass A

Internal Order

 SAP AG 2002
Joint Venture Material Posting

Goods Receipt
MM Assignments

Material Document

Accounting Doc JV Document

JV Document

 SAP AG 2002
Default Joint Venture Coding for PM Orders

Functional Project
Location

Equipment Cost centre

Plant Joint Venture

Maintenance Equity Type
Order
Recovery Indicator
JV Object Type
JIB/JIBE Class
JIB/JIBE Subclass A

 SAP AG 2002
Exercise 1.3: Create Integrated Master Data

1. Create a joint venture cost centre

2. Create a joint venture project

 SAP AG 2002
Unit 1 Summary

You are now able to:

 Understand the concepts and

gain hands-on experience of
mySAP.com Oil & Gas JVA
 Perform JVA related functions,
using Finance, Controlling,
Project System, and Materials
Management
 Use sample companies to
understand and apply JVA
functions

 SAP AG 2002