Fixed Assets - Asset Valuations - Depreciation Postings

Introduction
Depreciation - System Defined Methods
System Depreciation Methods

Introduction

Once an asset, which is subject to depreciation, has been valued it will be active and depreciating (subject to the depreciation start date). Depreciation will then need to be applied periodically until one of the following two situations occurs:

The asset is fully disposed of or transferred; or
The asset becomes fully depreciated.

A Fixed Assets financial year can be split into 12 or 13 periods. At the end of each period throughout the useful life of an asset, the system will use the depreciation method assigned to the asset to automatically calculate the depreciation applicable for the period.

NOTE Depreciation can be calculated using whole periods, or it can be calculated using only the applicable number of days within a period.

The process e5 uses to update the register at the end of a period is FI1. Attaching parameters to a request for this process will enable the user to advance the period for a specific book. This involves depreciation calculation, updating totals and, for the historic book only, postings for the General Ledger.

NOTE If the process is performed for a historic book, then calculations etc. will also be made for any user books set up to be depreciated automatically when triggered by the historic book.

All assets are assigned a life, during which time it is expected that they will contribute value to the company. Each period end run will reduce the remaining useful life assigned to an asset by one period.

A report can be produced by the Period End process if required.

Depreciation start dates and disposal dates can be overridden at a company-wide level by using the respective settings Full in Year of Purchase and Write Back in Year of Sale on FA Company Controls.

Full in Year of Purchase - The depreciation start date in each case will simply default to the first day of the year of acquisition, rather than the date the asset was actually acquired.

Write back in Year of Sale - No depreciation will be taken for an asset in the year it is disposed of. If the disposal is made during a year in which depreciation has already been taken, the system will reverse the depreciation calculations made for the year so far.

Depreciation - System Defined Methods

These are the codes which are referred to by the system in determining the calculations to be made for the depreciation of assets. The actual calculation method the code refers to will be defined by either a system depreciation method or a Rate Code.

System Depreciation Methods

Eight pre-defined codes are provided by the system. A Depreciation Method can be created for each one of them with the relevant code attached to it. The following methods are available:

Method	Description
Straight Line Depreciation - 001	The straight line methods are designed to reduce the valuation amount to the residual value, over the expected life, using equal depreciation each year. The period depreciation charge is recalculated each time from the amount to be depreciated and the remaining life in periods. Thus even when there have been overrides on the depreciation amount an asset will still be fully amortised.
Straight Line and Straight Line Weighted - 002	The difference between SL and SLW is that SLW will use a calendar. By reference to events on the calendar the depreciation is weighted over periods in a year. They both calculate equal amounts over the years, but SLW allows the user to variably spread the depreciation over the year. This method is used to have unequal periods of depreciation within the year.
Straight Line Daily - 003	SLD functions in a similar manner to SL but is based on the number of days in each period of the asset life rather than assuming all periods are equal. There are implications here for a depreciation start date that is in the middle of a period.
Reducing Balance Methods	The reducing balance methods RBA and RBB apply a percentage figure to the remaining depreciable amount (net book value) to amortise the asset over the nominated expected life. There are two differences between RBA and RBB.
Reducing Balance Method A - 005	The reducing balance method RBA applies a percentage figure to the remaining depreciable amount (net book value) to amortise the asset over the nominated expected life. With RBA the percentage figure is nominated and continues to be applied for depreciation until the annual amount of depreciation is less than would be applied by a straight line calculation method. This is then used to amortise the remaining asset value within the nominated expected life.
Reducing Balance Method B - 007	The reducing balance method RBB applies a percentage figure to the remaining depreciable amount (net book value) to amortise the asset over the nominated expected life. With RBB (also known as the Reducing Instalment method) the system calculates the percentage figure to be used. This means a specific figure is calculated for each asset. The percentage is based on the asset cost and residual value, to give a figure which will amortise each asset specifically. RBA finds an annual amount which is then apportioned equally over the periods in the year and RBB uses a figure calculated for and applied to individual periods.
Full Life Reducing Balance Method A - 009	A variation on RBA is RBF. The method RBF does not apply the check at the start of the year to compare the annual depreciation with a straight line over the remaining life. With RBF there is never a switch to straight line. For RBF the last period is used to fully write down the asset to its residual value.
Sum of Years Digits - 011	The method YD calculates the annual amount of depreciation by applying a factor or remaining life yrs / sum of years digits and then calculates the periodic depreciation to be used. The annual amount is written off equally over the year, (or part-year if in the final year where the expected life is nominated in years and periods). For the method YD life in whole years are expected but life with part years can be entered. The consequence of doing this should be understood. Annual depreciation amounts are calculated and in the final year the annual amount is apportioned over the remaining periods of life.
No Depreciation - 013	The method ND will give zero depreciation. The optional entry of a percentage allows a default rate to be in abeyance and become operative if an individual asset has a method override e.g. SL. Note that although the periodic amount of depreciation is zero, the asset life is still written down period by period.

NOTE The menu path shown is the default for the system. Your company may have customised menu options, so the path shown may not be accurate. Please contact your system administrator for details.