SAP Joint Venture Accounting or SAP JVA

SAP Joint Venture Accounting

Joint Venture is a business arrangement between 2 or more parties which agreed to share their resources, skills, Investment and risk in order to achieve a goal.

We can say, It’s kind of partnership, but in a joint venture parties are business partner for a specific tenure or period till they have completed their Task or Business activity.

Oil and Gas Company usually form in Joint Ventures, when they decide to Explore, Produce Oil & Gas. There are following reason to form a Joint Venture

  • High Risk :There are risks due to various considerations such as political, financial, and environmental impacts
  • High Capital Expenditure : Exploration and development are very capital-intensive stages
  • Long Payback period :- The industry is characterized by a long time frame before an enterprise recovers its initial investment and turns profitable

We can categories oil and gas industry in three sector on the basis of nature of Business

  • Upstream :- Involve in Production of Oil and Gas
  • Midstream :- Involve in transportation of Oil and Gas
  • Downstream :- Involve in Retail sale of Oil & Gas

SAP has designed a separate Module to maintain BOA related to Joint Venture Activity. SAP JVA provides functionality to control and record JVA operational activities with the help of the other Module like FI, CO, MM, SD, PS etc

SAP JVA provides you automotive process to record the business transactions and manage different type of reporting for example cash call request, cutback process, partner netting, bank switching etc.

There are integration between SAP JVA and other module like FI, CO, MM, SD, PS, PM etc.SAP JVA is solution that allows you to track venture expenditures on the basis of venture and partner.

SAP JVA provides you to facility of automate the calculations in case of expense allocation at the time of cutback.

SAP JVA helps to maintain venture transactions and provides different type of reporting.

Oil & Gas Joint Venture activities are run by one of the participating partners, appointed as Operator, and funded by all other partners as per their sharing ration called Non Operator.

Operator

Operator is a Business Partner who is responsible for run the operational activities, record the expense & publish the reports to non operator and other stakeholders.

Non Operator

Non Operator is Business Partner, who is ready to share their resources and skills and participating in investment, risk as per their sharing ratio.

Operated Ventures

If ABC Oil Ltd is participating as a Operator in a Joint Venture then It’s called Operated Venture for ABC Ltd

Example : -Joint Venture – JVA01

 Operator :- ABC Ltd – 50%
 TIC Oil & Gas – 30%
 XYZ Oil & Gas – 20%

Non Operated Venture

Where ABC Ltd participating as a Non Operator in a Joint Venture. And Holding a equity holding and another partner appointed as an Operator. It’s called Non Operated Venture

Example :- Joint Venture – JVA02

 Operator :- TIC Oil & Gas – 50%
 ABC Ltd :- 30%
 XYZ Oil & Gas – 20%

 On Billing Non Operated Venture

Where ABC Ltd is participating as a Non Operator, but also allocate their shares to others Partners

Example :- Joint Venture JVA03

 Operator :- TIC Oil & Gas – 50%
 ABC Ltd :- 30%
 XYZ Oil & Gas – 20%

Note: – Here ABC Ltd allocate their 10% Share to Other Company/partner REC Oil Ltd 10% of 30% – 3% = Allocated to REC Oil Ltd

Now Actual Ratio
 Operator :- TIC Oil & Gas – 50%
 ABC Ltd :- 27% + REC Oil- 3% = 30%
 XYZ Oil & Gas – 20%

Corporate Venture

Every Company have corporate Venture where ABC Ltd have 100% Sharing Ration to Manager company’s normal business (other than joint Venture) and to book expenses to Corporate venture, which are not part of Venture

Example

 ABC Ltd = 100%

JVA Main Business Function

  • Cash Call Request
  • PCO (Parent Company Overhead)
  • Equity Adjustment
  • Cutback Process
  • Convenience Netting
  • Partner Netting
  • Billing
  • Suspense Processing
  • VBA Switching
  • Allocation & Others

Thank You

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