IFRS 18, Part 3: SAP CO View, the Cost Flow Behind Operating Profit and CO-PA

Part 1 summarized IFRS 18 itself and Part 2 covered the SAP FI side, the Financial Statement Version (FSV).

Part 3 is about SAP CO. It follows how the expenses that end up in the IFRS 18 operating category are built in CO (cost center → distribution and assessment → activity allocation → production order → product cost → cost of goods sold → CO-PA), read from an S/4HANA sandbox.

Example system: S/4HANA sandbox with two controlling areas, CA10 (company code CC10, operating concern OC10) and JNC2 (company code JNC2, operating concern JNC2). It is a training system; the amounts are only there to show the structure.

1. What IFRS 18 asks of CO

Item Topic Detail
Operating category How expenses are classified Expenses in the operating category are presented by function (cost of sales, selling, administration) or by nature (materials, personnel, depreciation), whichever is more useful. If presented by function, the notes must disclose the amounts by nature for depreciation, amortisation, employee benefits, impairment and inventory write-downs (IFRS 18 paragraph 83).
Role of CO Function and nature kept together CO stores the cost center (which department = function) and the cost element (what kind of cost = nature) on every posting. The functional area supports presentation by function; primary cost elements support the disclosure by nature.
Cost of sales Product cost flow Cost center expenses flow through activity allocation and assessment cycles into production orders, into inventory at standard cost, and become cost of sales on delivery. This flow produces the largest part of operating profit.
CO-PA Candidate for the operating profit subtotal Costing-based CO-PA (KE24/KE30) keeps revenue, cost of sales and SG&A in separate value fields. Investing and financing items (interest and so on) are not in CO-PA, so the CO-PA margin has the same structure as IFRS 18 operating profit.
MPM Basis for adjusted operating profit To disclose a management-defined performance measure (for example operating profit before depreciation) a reconciliation table is required. CO-PA value fields and cost elements provide the underlying figures.

2. How operating expenses are built in CO (read from the sandbox)

Step Object (as found) Detail
1. Primary postings Primary cost elements 5xxx (category 01) FI documents arrive with a cost center. CA10: 5030 Cost-RM, 5070 SAL, 5080 DEP, 5090 subcontracting, 5210 Building_Expense. JNC2: 5060 Cost-RM, 5140 SAL, 5150 DEP, 5160 OTHER, 5170 subcontracting. 2026 postings: CC1010 (SG&A) 5210 16,666.66; CC7010 (subcontract) 5032 751,470; JNC28010 5140 30; JNC29010 5150 90.
2. Activity allocation Activity types AT8020/AT8030/AT8040 (CA10), AT8010/AT8020 (JNC2), secondary cost elements 8020 to 8040 (category 43) Production cost center costs (CC9010 Dir.M, JNC29010) move to production orders per hour. 2026 postings: CC9010 8020 Activity Labor −0.13, 8030 Activity Machine −0.09 (sender credit); JNC29010 8010 −30, 8020 −90.
3. Distribution cycles CA10AD0010 (2 segments), CA10AD0020, JNC2AD1010 (ALART = V) Move costs under the original primary cost element. CA10AD0010-010: sender CC8010, cost element 5070; -020: sender CC8020 (receiver tracing factor type WKGI/SMEI). JNC2AD1010: sender JNC27010 to receiver JNC28010, tracing factor cost element 4010 (revenue).
4. Assessment cycles CA10AA0010 (allocation structure AS10), JNC2AA1010 (assessment cost element 8040) (ALART = U) Move costs under a secondary cost element. AS10: assignment A20 = 5070 (SAL) to 8050 CCA Assess-SAL, A30 = 5080 (DEP) to 8060 CCA Assess-DEP. JNC2AA1010: sender JNC28010 cost element 5140 to receiver JNC29010, assessment cost element 8040, tracing factor activity type AT8010. 2026 postings: JNC28010 8040 −30 / JNC29010 8040 +30.
5. Production orders Order types OT10 (PT10), JN10/JN20 (JNC2), settlement cost element 8080 IO Settlement (category 21) Material (movement type 261) and activity costs collect on the order; goods receipt (101) creates finished stock. 2026 business transaction types found: RMWA (goods issue), RMWE (goods receipt), RKL (activity allocation), KOAO/KOAE (order settlement), AFAB (depreciation), RMWL (delivery goods issue), SD00 (billing).
6. Standard cost KEKO costing variant PPC1 / version 01 / costing date 2026-07-01 (PT10 ML*), 2026-08-01 (JNC2 JNC4002, JNC4003) CKIS itemization, ML4001: E lines 8020 CC9010/AT8020 0.03 h, 8030 CC9010/AT8030 0.02 h; M lines 5030 ML5002 0.5 kg, ML5005 0.05 kg, ML5006 0.45 kg. JNC4002: M lines 5080 five raw materials 42.00, L line 5170 subcontracting 40.00 (cost component 040).
7. Cost components Cost component structure JN: 010 Raw Materials / 020 Labor / 030 Depreciation / 040 Subcontract (standard structure 01 has 9) Splits the standard cost by nature. This split pairs with the CO-PA cost of sales value fields (VV021 raw materials, VV022 labor, VV023 depreciation, VV024 subcontracting).
8. Cost of goods sold 4020 COGS-FG (GBB-VAX), billing transaction type SD00 On delivery the standard cost is posted to 4020 cost of goods sold; billing posts 4010 revenue. 2026 postings: CC10 4010 −15,900 / 4020 110.8; JNC2 4010 −200 / 4020 188 (credits negative).

3. Functional areas and cost center master data (as found)

Controlling area Cost center (name) Category / functional area Detail
CA10 CC1010 (Cctr 1010 SG&A) 2 SG&A / FA20 Selling and administration. All 2026 postings (5030, 5040, 5050, 5070, 5210, 6010) stored with FA20.
CA10 CC7010 (Subcontract) 1 Manuf / FA10 Subcontracting cost center. 5032 raw materials provided 751,470 and 5090 subcontracting 277,001.5 carry FA10, but 5011, 5051 and 5091 on the same cost center are stored with FA20 (cause not checked here).
CA10 CC8010 to CC8022 (Ind.M) 3 Ind.M / FA10 Six indirect manufacturing cost centers. Senders of distribution cycle CA10AD0010 (CC8010 5070, CC8020).
CA10 CC9010 (Dir.M) 1 Manuf / FA10 Direct manufacturing. Sender cost center of activity types AT8020/AT8030 (E lines in the standard cost).
JNC2 JNC21010 (SG&A) 2 SG&A / JNCS Selling and administration. No 2026 postings (0 documents with JNCS).
JNC2 JNC27010 (Subcontract) 1 Manuf / JNCM Sender of distribution cycle JNC2AD1010. Postings 5080 42, 5170 40.
JNC2 JNC28010 (Indirect Manufacturing) 3 Ind.M / JNCM Sender of assessment cycle JNC2AA1010 (5140 SAL 30 to 8040 −30).
JNC2 JNC29010, JNC29020 (Direct Manufacturing) 1 Manuf / JNCM Senders of activity types AT8010/AT8020, receiver of the assessment (8040 +30).
Both Functional area master TFKBT FA10, FA20 / JNCM, JNCS CA10 uses FA10 (manufacturing) and FA20 (S&A); JNC2 uses JNCM (Manufacturing) and JNCS (SG&A). As seen in Part 2, CC10 documents use FA10/FA20 only. The functional area is derived from the cost center master (CSKS-FUNC_AREA); documents without a cost center (inventory accounts and so on) have no functional area.

4. CO-PA value fields, characteristics and the IFRS 18 categories (as found)

Item Object Detail
Operating concern OC10 (CA10) / JNC2 (JNC2) Both costing-based CO-PA (line item tables CE1OC10 / CE1JNC2, KRW, fiscal year variant K4). Neither has a KEU assessment cycle (0 cycles in CE7OC10 / CE7JNC2).
Value field VV010 Sales Revenue. IFRS 18 category: operating.
Value field VV020 COGS = VV021 raw materials + VV022 labor + VV023 depreciation + VV024 subcontracting Cost of goods sold and its split by nature, one to one with cost component structure JN (010 to 040). IFRS 18 category: operating (presentation by function plus the basis for the disclosure by nature).
Value field VV030 SG&A Labor / VV040 SG&A Depreciation / VV090 SG&A Others Selling and administration by nature. IFRS 18 category: operating.
Not in CO-PA Interest income, interest expense, income taxes No value fields. The investing, financing and income tax categories are built in FI (the FSV in Part 2), not in CO-PA. Disposal gains and losses (9140/9150) are not in CO-PA either; if needed they are transferred from FI with KE21N or a KEU assessment.
2026 data CE1OC10 (CC10) 2026/006, 3 line items: Sales 2,100 / COGS 84 (raw materials 21, labor 21, depreciation 42). 2026/007, 3 line items: Sales 13,800 / COGS 23 (14, 5, 4). The SG&A value fields are 0: SG&A cost center costs are not assessed into CO-PA (no KEU cycle).
2026 data CE1JNC2 (JNC2) 2026/007, 4 line items: Sales 200 / COGS 188 (raw materials 68, labor 30, depreciation 90). Customer JNCBP1, material JNC1001.
Characteristics KNDNR customer, ARTNR material, WERKS plant, VKORG/VTWEG/SPART sales organization, FKBER functional area, PRCTR profit center, KSTAR cost element, COPA_KOSTL cost center CE1OC10 carries the functional area (FKBER) and the cost element (KSTAR), so CO-PA can also split by function and by nature. SEGMENT is available for segment reporting of operating profit.
Rearrangement KE30 report form Operating profit subtotal = VV010 − VV020 − VV030 − VV040 − VV090. With no investing or financing items, the KE30 margin is the operating profit. This is the same formula the ZCO0030 report (a KE24-style line item report) uses for its contribution margin.

5. A management-defined performance measure (MPM) from CO-PA value fields

Line JNC2 2026/007 Basis (value fields)
Revenue 200 VV010
Cost of goods sold (188) VV020 = VV021 68 + VV022 30 + VV023 90
Selling and administrative expenses 0 VV030 + VV040 + VV090
Operating profit (IFRS 18 subtotal) 12 VV010 − VV020 − VV030 − VV040 − VV090
Add back: depreciation 90 VV023 + VV040 (taken directly from the value fields by nature)
Adjusted operating profit (MPM example: operating profit before depreciation) 102 Operating profit + depreciation. IFRS 18 requires this reconciliation (adjusting items and their basis) in the notes.

6. Preparation checklist (CO)

No. Step Detail
1 Cost center to functional area Check in CSKS that every cost center has a functional area and that the two sets (FA10/FA20, JNCM/JNCS) are not mixed. Also check the derivation for documents without a cost center (substitution).
2 Cost element to nature mapping Build a table that groups primary cost elements into the IFRS 18 nature items (depreciation, employee benefits, inventory write-downs and so on). Cost element groups (KAH1) make this usable in reports directly.
3 Keep the nature through allocations An allocation structure split by nature (AS10: SAL to 8050, DEP to 8060) keeps the nature traceable after assessment. A single assessment cost element (8040 in JNC2AA1010) loses it, which is a disadvantage for the note disclosure.
4 Cost components to value fields Check that the pairing of the cost component structure (JN 010 to 040) with the CO-PA value fields (VV021 to VV024) matches the nature items to be disclosed.
5 SG&A into CO-PA Without a KEU assessment cycle that moves SG&A cost center costs into CO-PA, the KE30 margin is not the operating profit (sandbox: VV030/040/090 all 0).
6 MPM reconciliation If the company uses adjusted operating profit or similar, fix the adjusting items at value field level and produce the same table every closing.
7 Reconcile with FI At closing, compare CO-PA operating profit with the FSV operating profit (Part 2). Differences come from items that are not in CO-PA, such as disposal gains and losses.

7. References

Source Document Link
This blog IFRS 18, Part 1 Operating, Investing and Financing Categories and the New Operating Profit
This blog IFRS 18, Part 2 SAP FI View, Adapting the Financial Statement Version (FSV)
IFRS Foundation IFRS 18 standard page ifrs.org, IFRS 18
This blog ZCO0041 distribution cycle report An ABAP report that unfolds CO distribution cycles (KSV1/KSV3)
This blog ZCO0042 assessment cycle report An ABAP report that unfolds CO assessment cycles (KSU1/KSU3)

Korean version of this post: blog.naver.com/jeonnow/224414889843

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