Depreciation

 


 

Depreciation Categories

The different methods of calculating historic depreciation are held as depreciation categories. Each category is identified by a code of up to three characters which can consist of numbers, letters and the symbols / (forward slash), - (hyphen) and _ (underscore). The codes usually reflect the type of asset using the depreciation method (e.g. EQ for equipment).

The categories are set up through the option Depreciation Categories.

A depreciation category must be specified for every asset when adding assets added to the Asset Register via the option Assets. The most commonly used depreciation category can be defined in the system key FADEPCAT, so that it is shown as the default category.

If the asset is to be given a different depreciation category, the operator can overtype it with the appropriate code.

 
Straight Line

Using the straight line method, assets depreciate at a fixed rate each period. This method therefore spreads the provision equally over the period of anticipated life.

The straight line life method (SLL) calculates depreciation as:

(capital cost - residual value) / total life

The straight line percentage method (SL%) calculates depreciation as follows:

(capital cost - residual value) * percentage

Adding Depreciated Assets

If an asset with prior depreciation is added to the Fixed Asset Register, the written down value (WDV) is used instead of the capital cost. Depreciation for each period is calculated as:

(WDV - Residual value) / (Remaining no. of periods)

 
Reducing Balance

The reducing balance method allows assets to depreciate at a diminishing rate each period. This method therefore spreads the provision by decreasing amounts over the period of anticipated life. Relatively heavy charges in depreciation are incurred during the earlier periods of the life and lighter charges in the later periods.

The total life or percentage is usually twice that of the straight line method. The advantage of this method is that ever increasing maintenance and repair charges for plant and machinery can be offset against the decreasing depreciation charges.

The reducing balance life method (RBL) calculates depreciation as:

(WDV - residual value ) / total life

The reducing balance percentage method (RB%) calculates depreciation as follows:

(WDV - residual value) * percentage

 
Depreciation Period

The depreciation charges are usually divided equally between these periods. However, depreciation may be weighted differently each period to keep the depreciation charges in line with other expenditure (e.g. Payroll). In order to weight the charges differently, the number of weeks per period must be defined.

For example, a year with 12 financial periods may be specified as having four periods of five weeks and eight periods of four weeks as follows: 544544544544 weeks.

This uneven spread of depreciation charges is controlled by system key FAPERWEEKS and can only be used with the Straight Line depreciation methods (SLL and SL%).

If the depreciation charges are divided equally among the financial periods, depreciation may be calculated at large intervals, for example, quarterly or half-yearly. However, if depreciation charges are to be weighted unevenly through the year, the depreciation period must correspond to the financial period.

The depreciation calculations may be run any number of times during the depreciation period, but they can only be posted to the General Ledger at the end of the period.

 
Adjustments to the Written Down Value (WDV)
If an assets requires an adjustment to its value other than normal depreciation, this is done through the option Adjustments. The amendments are posted to the following accounts:
  • Debit - Adjustment (Profit & Loss)
  • Credit - Depreciation (Balance sheet)
Disposal of Assets with Prior WDV Adjustment

When disposing of an asset for which there has been a prior adjustment to the written down value, the profit or loss is calculated as follows:

Cost - Cumulative Depreciation + WDV Adjustment Proceeds

The WDV adjustment is posted to the General Ledger as follows:

  • Debit - Asset disposal suspense
  • Credit - Depreciation (Balance Sheet)
Minimum WDV and Residual Value

Fixed Assets permits a minimum WDV to be defined. If a depreciation calculation causes the value of an asset to fall below this figure, the asset immediately assumes its residual value and does not depreciate any further. In other words, the WDV of the asset becomes zero. (This does not apply, of course, if the residual value of an asset is higher than the minimum WDV.)

The minimum WDV is defined by the system key FAMINWDV, which must be set to an appropriate figure when Fixed Assets is first installed.

 
Number of Decimal Places
All monetary values are calculated and recorded in the Asset Register correct to six decimal places, in order to ensure maximum accuracy. However, it is possible to limit the number of decimal places in monetary figures when they are entered by the operator or shown in enquiry programs and reports. This limit is defined by the system key FAVALDEC, which must be set to an appropriate number in the range 0 to 6 when Fixed Assets is first installed.

 

 

 

Depreciation Details
 

This Depreciation Details report produces a number of reports showing the depreciation of assets or regional development grants for either the current period or the year to date.

Improving Performance of this Report

If you have a large amount of data, you can run this option with a parameter of 'O' as follows:

In System Manager>Configure User Interface>Options you must add the parameter 'O' to the command of the option fa_dep_report, i.e., faprep O should now be the command.

This is only affective if you are running this report with a major sort order of 2 or greater and you have the Consolidate field set to Y.

Please also note that the column next_add_no on the asset_register table (famastm) needs to be correct. An option Add-on Number Fix to correct this column can be run but must also be added manually to a Fixed Asset menu, as follows:

Add option: fa_addno_fix to suggested menu fa_house_4.