If maintenance activities are to be carried out for an equipment and at  the same time if an identical replacement is to be 
maintained for it in inventory then is it better to create it from the material master rather than from 
PM -> Technical Objects -> Create -> Equipment.

What is the significance of maintaining Functional Location BOM.

I would do both create a material number for consistency and the replenishment of equipment in the future and also assign it a unique equipment master record number. 

In the equipment master record (I believe PM DATA screen), there is a construction type field which is by default an IBAU material. Link the material number to the equipment master. If you want to get real slick, create the equipment master record with reference to the material number. This way the description (short text) of the equipment is automatically populated by the Construction Type (IBAU material) as well as populating the Construction Type field.

The Functional Location BOM further enhances the hierarchy of the equipment master BOM via Component lists. Lets say you have several equipment (large assemblies) BOM's made up of smaller components (material). You could then create several large assemblies in the material master which would be the equivalent to the equipment (large assemblies) which have BOM's of smaller components (material) . Next, create a Functional Location BOM made up of several of these larger assemblies (material) . This will provide you with a nice hierarchy when running List Edit Display (multi level).

This is a rather complex situation because if the equipment is an asset then the repair costs should reflect the asset value too in some cases.  Also the replacing equipment has its own cost record and I think you want to know which equipment number has the most costs collected.

There are a few other ways to control this situations:

1. Creating a sub work order linked to the main work order with the repaired material. So this sub work order should 
    collect the repair cost. This has the advantage that the main work order cannot be closed unless the repair has been 
    closed.  (or a disadvantage in some cases)

2. You can also use the serialization utility, meaning creating a material number and link it to the equipment and activate 
     this utility in the material master record. For every movement in MM , it will ask for the related serial number and 
     accordingly to the proper equipment. So if you send this to the vendor I think this is an advantage to see how much 
     time this particular equipment has been send out for repair. 

But as I said before, the whole process can be very complex if you want to follow it up properly.
 

In SAP, On what basis we decide to create either material master record or Equipment master record.
And what is the basic difference between Material Master record and Equipment master record.

In SAP a material is a representation of an object that can be procured, produced, assembled, sold, and replaced (among a couple other things).  A material can exist as a physical object as stock and it can also exist as a virtual representation of a structure or process.  Usually materials are handled as groups of objects (like 100 fenders or a dozen cookies of batch A or 4 panels in restricted stock).

An equipment is a representation of a single physical object that is handled at a much more granular level than materials.  An equipment is typically installed somewhere and can have extra information (like warranty or measurement data) and can have maintenance done on it.  Usually it's the individualization and maintenance aspect that determines if an object is an equipment or a material (a single entity for which you want to track data like maintenance work, history, or costs).

An equipment can also be linked to a material by indicating that the equipment is made of the material (as a generalization - construction type) and/or indicating that the equipment is actually an instance of a material (material plus serial number in the serial data tab).                  *-- Tim

SAP PM Books
SAP Plant Maintenance Certification, Interview Questions and Configuration Reference Books

SAP PM
SAP PM Tips and Plant Maintenance

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