Fixed Assets - Asset Maintenance - Depreciation - Tab

Pgm: FAASSET – Asset Maintenance; standard Treeview path: Fixed Assets > Assets > Enter Assets – Depreciation tab

This tab is used to manage asset depreciation. There are several methods available to calculate an asset's depreciation. Refer to Depreciation Calculation Methods to learn more about how these methods are used.

Category

Enter/select a valid asset category code. Categories are used both to classify the assets and to define default values for depreciation parameters. These codes are maintained in the Asset Category Maintenance screen.

Depreciation Method, Default Method

For new assets, the initial value for the Depreciation Method field is set to “Default”. When this field is set to “Default”, the default method displayed in the Default Method field will be inherited from the selected asset category code in the Category field.

If the field is set to "Declining Balance/Yearly", the Initial Depreciation, Initial Months, and Charge Depreciation In fields will be disabled.

Economic Life

This is a memo field. By default, the value defined for the selected asset category is displayed but can be updated as required. The information entered in this field is not used in the Fixed Asset module but can be used to allow comparisons with the following Expected Life in Months field, since an asset’s economic life is not always the same length as its physical life.

Expected Life in Months

This field is enabled only if the depreciation method is straight line. By default, the value defined for the selected asset category is displayed. This value is the number of month’s duration that the asset is expected to be used. The value is used in conjunction with the adjusted cost base (ACB) and residual value to determine the annual amount of the asset’s depreciation.

CCA Class

Enter/select a valid CCA class code. This is used for an annual report used to prepare income tax returns. These codes are maintained in the CCA Class Maintenance screen.

By Asset – Checkbox

Check this box if you want the CCA report to break this asset out onto a separate line. Assets for which this box is not checked will be summarized by CCA class.

Straight-line Amount

This field displays an estimate of the amount by which this asset will depreciate each year. It is applicable only to assets for which the depreciation method is straight line.

Declining Balance Percent

This field is enabled only if the depreciation method is declining balance. It is the percentage used in conjunction with the net book value (NBV) each month to calculate the depreciation. If no value is entered, the default for the selected asset category is displayed.

Original Cost

Enter the original cost of the asset. In order to calculate depreciation, this value must be entered.

Residual Value

This field defaults to a value calculated from the asset’s original cost and the residual rate defined for the asset category. This value (not the rate) may be overridden at the asset level.

Adjusted Cost Base

The ACB, calculated as the sum of the original cost and additions and betterments, is displayed here.

Initial Depreciation

This field is used for setting up assets that have already depreciated. It contains the amount by which the asset has depreciated before it was added to the Fixed Assets module.

Accumulated Depreciation

This is a running total of the depreciation charged to this asset to date. It includes the initial depreciation as well as all the monthly depreciation expenses.

Initial Months

This is normally calculated automatically when you commit (insert) a new asset record that has already depreciated (initial depreciation is greater than zero). It is the number of months that the asset has already depreciated before it was entered into the module. This value is calculated from the activation date, current date, and the checkbox (described below) defining seasonal depreciation. For existing assets, it is possible to update this value, if desired, but a value entered here for a new asset will be overwritten when the asset record is saved.

Net Book Value

The NBV (calculated as the ACB minus accumulated depreciation) is displayed here.

Charge Depreciation in – Checkbox

There is a checkbox for every month in the year. These are used to define seasonal depreciation for assets that are not used year-round. Initially, all of the boxes are checked to signify that the asset depreciates every month. Uncheck the box for any month that you want this asset excluded from all expense calculations – not just depreciation.

[User Defined] – Button

This button is enabled only for assets having the user-defined depreciation method. To learn more, refer to User-Defined Depreciation.

Overriding Defaults

When the value of a field is inherited from the asset category, the field looks like a display field. However, unlike normal display fields, this can be accessed to enter an overriding value. If there is an overriding value, the field looks like a normal input field. It’s possible to restore the default by deleting the contents of the field.

If overriding the default by the same value (e.g., freeze the value so it is not sensitive to future changes to the asset category), first change it to another value and then back to the default value.

Depreciation Calculation Methods

User-Defined Depreciation

With user-defined depreciation, specify on a year-by-year basis the annual straight-line depreciation rate for an asset. For each asset having user-defined depreciation, the [User Defined] button is enabled. Clicking on this button brings up a window in which a series of years and the corresponding annual depreciation rate are entered. Unless the sum of the rates is equal to 100 or there are no rates specified, this window cannot be closed or committed. In the latter case, no depreciation will be calculated for the asset.

In theory, if the ACB of an asset never changes, the NBV will be reduced by the specified percent each year until it equals the residual value. However, if additions or betterments are applied, it may be necessary to adjust the rates to get the NBV down to the residual value. Although rates for past years can be updated to facilitate this adjustment, it is not possible to delete the lines for past years.

As with the other depreciation methods, user-defined depreciation is only calculated if the current month is checked on this tab, and the annual depreciation amount is divided by the number of months checked to determine the monthly amount.

Straight Line Depreciation

Straight Line method will be using a proportional calculation if an asset is activated on any date other than the first day of the month. Proportional calculation will be based on the number of days an asset was active in the initial month.

The proportional calculation ratio is as follows:
(Number of Depreciable days ÷ Number of days in initial month) × Monthly Depreciation amount

For example, an asset activated on the 16th day of January: (16 ÷ 31) × 10,000.00 = 5,161.29

Insurance, license, and interest amounts will also be using proportional calculation based on the activation days and number of days in the initial month.

Posting of the difference of depreciation amounts is as follows:

Since this modification potentially reduces the depreciation amount for the initial month, the difference or remaining amount will be posted in the month after the last month as per the expected life of the asset ends.

For example, the difference in amount due to the reduced initial depreciation = 10,000 ˗ 5,161.29 = 4,838.71

This will be posted after the last month as per expected life.

Example:

ASSET: TRUCK

Activation Date: 10th March 2020

Number of days in initial month: 31

Monthly depreciation: 7500

Depreciable days in initial month: 22

Depreciation in initial month: [(22 / 31) * 7500] = 5322.58

Interest monthly: 333.33

Interest in initial month: [(22/31) * 333.33] = 236.559

License monthly: 16.67

License in initial month: [(22/31) * 16.67] = 11.83

Monthly Insurance: 320.83

Insurance in initial month: [(22/31) * 320.83] = 227.69

Pgm: FAASSET – Asset Maintenance; standard Treeview path: Asset Management > Fixed Assets > Enter Assets

Pgm: FAASSET – Asset Maintenance; standard Treeview path: Asset Management > Fixed Assets > Enter Assets – Depreciation tab

Pgm: FACALC – Calculate Monthly Expenses; standard Treeview path: Fixed Assets > Transaction > Calculate Monthly Expenses

Pgm: FACALC – Calculate Monthly Expenses; standard Treeview path: Fixed Assets > Transaction > Calculate Monthly Expenses – Edit Monthly Expenses node

Depreciation Posting Report (31-02-2020)

As the asset was not activated on 1st of the month, it will calculate proportional charges for the first month and the remaining amount will be posted in the subsequent month when the expected life of the asset ends.

The last posting for the asset "TRUCK" would be as follows:

Remaining amount: 7500 – 5322.58 = 2177.42

Depreciation Posting Report (31-03-2021)

The asset was activated in March 2020 with an expected life of 12 months. The asset was fully depreciated in March 2021. The depreciation in March 2021 would be the remaining amount from the proportional calculation of the first month.

NOTE: Proportional calculation will not apply to license, interest, and insurance amount in the last month of depreciation. These amounts will be calculated fully.

Pgm: FADTLQRY – Asset Transaction Detail Query; standard Treeview path: Fixed Assets > Query > Asset Transaction Detail Query

Addition and Betterment

The expected life cycle will be renewed from the month when betterment is added, and expected life is reset.

Declining Balance (Monthly or Yearly) Depreciation

The Declining Balance method applies a constant rate of depreciation to an asset's value. Users can choose to calculate the depreciation monthly or yearly.

For the Declining Balance/Yearly method, the per month depreciation amount remains constant as the Net Book Value (NBV) only updates at the end of the year. The Declining Balance/Yearly method will calculate the depreciation based on the prior year's NBV and divide it evenly over the fiscal year. As a result, Addition and/or Betterment will not affect the current depreciation calculation.

Example of Declining Balance/Yearly method:

A piece of machinery purchased for $50,000 with a 30% depreciation rate will have a depreciation amount of $15,000 for the first fiscal year, with a monthly depreciation of $1,250 (30% / 12). For the second year, the NBV becomes $35,000 ($50,000 - $15,000), and the depreciation amount will be $10,500 for the fiscal year.

For the Declining Balance/Monthly method, the per month depreciation amount will change as the NBV updates monthly.

Example of Declining Balance/Monthly method:

A piece of machinery purchased for $50,000 with a 30% depreciation rate with monthly NBV updates will have a depreciation amount of $1,250 for January, $1,218.75 for February, and so on. The depreciation amount for the first year will be $13,100.

Half-Year Rule

Pgm: FACCAMNT – CCA Class Maintenance; standard Treeview path: Fixed Assets > Setup > Local Tables > CCA Classes

Users can apply the half-year rule calculation on the purchase of an asset during the fiscal year. The 'Half-Year Rule' checkbox is available on CCA Class Maintenance screen, as shown in the screenshot above, and is used to enable/disable the half-year rule for an asset class. The half-year rule controls how depreciation is calculated, however, it will only be applied if the depreciation method is Declining Balance/Yearly or Straight Line. This rule, if checked, will treat all property acquired during the year as being acquired exactly in the middle of the year. This means that only half of the full-year depreciation is allowed in the first year, while the remaining balance is deducted in the final year of the depreciation schedule, or the year that the property is sold.

Formula:

Depreciation = (Original Cost of the Asset - Residual Value) x Depreciation Balance Percentage x 1/2 *only if first or last fiscal year

Example #1 for Declining Balance/Yearly with Half-Year Rule turned on:

Assume that the useful life of the asset is 10 years, it became active in March 2022, the fiscal year is June - May, the Net Book Value is $60,000 and the depreciation percentage is 10% for the Declining Balance/Yearly method.

In this example, the asset would be depreciated for a period of 10 years, however the actual depreciation would occur within 11 fiscal years due to the half year rule:

• Year 1: March 2022 – May 2022 (3 months)

• Year 2: June 2022 – May 2023

• Year 3 : June 2023 – May 2024

• Year 4: June 2024 – May 2025

• Year 5: June 2025 – May 2026

• Year 6: June 2026 – May 2027

• Year 7: June 2027 – May 2028

• Year 8: June 2028 – May 2029

• Year 9: June 2029 – May 2030

• Year 10: June 2030 – May 2031

• Year 11: June 2031 – Feb 2032 (9 months)

Year 1 (3 months) + Year 11 (9 months) = 12 months

Years 2 to 10 would be depreciated for the full year, for a total of 9 years.

The first year’s depreciation would be: ($60,000 x 10% ) x 1/2 = $3,000 for March 2022 - May 2022 (3 months in 2022).

In the final year of its useful life (fiscal year period: June 2031 to May 2032), assuming the Net Book Value is $2,400 in the prior year, the depreciation would be: ($2,400 x 10% ) x 1/2 = $120.

Example #2 for Straight-Line with Half-Year Rule turned on:

In this example, assume the asset was purchased for $55,000 and has a residual value of $5,000 with a useful life of 10 years.

The first year’s depreciation would be: ($55,000 - $5,000) x 10% x 1/2 = $2,500.

Years 2-10 would be $5,000/year in depreciation, and Year 11 would be the remaining $2,500 in depreciation.

The depreciation schedule would be: