SAP Financial Accounting (SAP FI) Practice Exam

How is an asset tracked during the phase of building a new plant?

1. Create an AUC building asset

2. Record as a fixed asset in the financial books

3. Report it as a liability for the company

4. Classify as operational expenses

The correct answer is: Create an AUC building asset

The correct approach to tracking an asset during the phase of building a new plant is to create an AUC (Asset Under Construction) building asset. This accounting treatment is essential because it allows a company to accumulate the costs associated with the construction, including materials, labor, and overhead, in a dedicated account that reflects these costs are not yet ready for use in operations. Using an AUC is crucial for accurately reflecting the status of the asset. It provides transparency in financial records and ensures that the investment in the new plant is tracked separately until it is complete. Once the construction is finished, the costs accumulated in the AUC can then be transferred to the relevant fixed asset account, marking the asset ready for operational use and depreciation. In contrast, recording it as a fixed asset in the financial books is premature, as the asset is not yet in a state to provide economic benefits to the organization. Reporting it as a liability would inaccurately suggest that the company owes something concerning the construction costs, rather than showing the investment being made. Classifying the construction costs as operational expenses would also misrepresent the asset's nature, as these costs should be capitalized until the asset is operational. Thus, creating an AUC building asset is the correct method for tracking