SAP Financial Accounting (SAP FI) Practice Exam

Which type of assets does not depreciate but accumulates costs?

1. Fixed assets

2. Assets under construction

3. Low value assets

4. Current assets

The correct answer is: Assets under construction

Assets under construction are classified as such because they are not yet completed and ready to be used. During the construction phase, these assets do not undergo depreciation. Instead, costs associated with their construction, such as materials, labor, and overhead, accumulate. This differing treatment reflects the nature of these assets as they transition into fully operational fixed assets once completed. Upon completion, the total cost accumulated during the construction phase is then transferred to fixed assets, where it will start to depreciate over time. In contrast, fixed assets typically begin to depreciate as soon as they are operational. Low value assets have specific depreciation rules, and current assets are generally considered to be those that are liquid or expected to be used or converted to cash within a year, which do not involve depreciation in the same manner. Hence, the nature of assets under construction is distinctive in that they are still accruing costs without incurring depreciation until they reach completion and are put into service.