Understanding Escalation Indices for Overhead Calculation

A fixed overhead amount can be escalated regularly according to an index specified for a calendar year. For example, commercial leases are often set up with terms to regularly increase or decrease the rent or other charges, according to a standard index.

The joint operating agreement might specify that you can use a standard escalation index such as the COPAS (Council of Petroleum Accountants Societies) in the United States or the PASC (Petroleum Accountants Society of Canada) in Canada, or any other escalation index set up for the joint venture. Escalation indices are the agreed-upon increase in the overhead that you specify for each month or year. Before you calculate the overhead using the fixed amount with escalation method, you must set up the escalation indices.

The system stores the escalation indices that you set up in the Escalation Index table (F09J60).

You can review existing escalation indices and you can create new escalation index records for joint ventures in the EnterpriseOne system using the Escalation Indices program (P09J60). If you have calculated the overhead for a month, then the system will not allow you to update the escalation index for that specific month. Also, if the journal entry is not created, then you can delete the calculation record, and make changes to the index for that month.

For example, consider an escalation index record with the base amount as 100 USD:

Month	Escalation Index	Overhead Amount (USD)
January	0.00	100
February	10.00	110

In this case for January month, since the escalation index is 0.00, the calculated overhead amount is 100 USD. For February month, the base amount of 100 USD is escalated by 10%, therefore the calculated overhead amount is 110 USD.