Depreciation Algorithms

Fixed Assets calculates depreciation using two different methods:

• Straight Line
• Diminishing Value

The properties on the Details tab under Depreciation Rate specify which method is used for each asset.

Straight Line Method

The following steps show the logic the system works through to calculate depreciation and reset relevant field values on ASSET_REG. This assumes the Straight Line method is being used for book/accounting depreciation. Similar fields are available for tax depreciation.

1. Determine the date to depreciate from. This is the earliest of either the start of the current financial year (CURRENT_YR_DEP_START_BOOK) or commission date (COM_DATE).

2. Calculate the number of days between the date to depreciate from (A) and the date to depreciate to. The date to depreciate to is the date specified on the Depreciation tab.

3. Determine the opening Net Book Value (NBV). This can be the NBV at the start of the current financial year (YR1_BOOKVAL). However, if this is not set, (i.e. the asset has not yet gone thought a year-end roll-over) use the asset’s cost (START_VALUE).

4. Calculate the Year-to-Date depreciation charge

   = Depn Days (B) / 365 × Depn Rate (DEPRATEACC) × Asset Cost (START_VALUE)

5. Calculate the new NBV (new DEPVALUE)

   = Opening NBV (C) - The Year-to-Date Depreciation charge (D)

6. Calculate the current period depreciation charge

   = New NBV (new DEPVALUE, refer to (E)) - current NBV (DEPVALUE)

Updates:

• The depreciation charge (F) is charged to the General Ledger Depreciation expense account.
• The system overwrites the DEPVALUE field with the new Net Book Value (E).
• The system overwrites the Last Depreciated Date (DEP_DATE) with the date specified on the Depreciation tab.

Example

This example uses the asset from the Depreciation - Worked Example and shows how that asset's 31/03/2009 depreciation run is calculated.

On the Calculate Depreciation screen we specify 31/03/2009 as the Depreciation Date.

1. Determine the date to depreciate from. This is the earliest of either the start of the current financial year (CURRENT_YR_DEP_START_BOOK) or commission date (COM_DATE) = 30/06/2008

2. Calculate the number of days between the date to depreciate from (A) and the date to depreciate to. The date to depreciate to is the date specified on the Depreciation tab = 274 Days between 31.03.2009 and 30.06.2008

3. Determine the opening Net Book Value (NBV) = YR1_BOOKVAL = $900.82

4. Calculate the Year-to-Date depreciation charge

   = 274 Depn Days / 365 × 20% Depn Rate (DEPRATEACC) × $1000 Asset Cost (START_VALUE)

   = $150.14

5. Calculate the new NBV (new DEPVALUE)

   = $900.82 Opening NBV  - $150.14 The Year-to-Date Depreciation charge

   = $750.68

6. Calculate the current period depreciation charge

   = $750.68 New NBV - $800.00 current NBV (DEPVALUE)

7. = $49.32

Updates:

• The depreciation charge ($49.32) is charged to the General Ledger Depreciation expense account.
• The system overwrites the DEPVALUE field with the new Net Book Value ($750.68).
• The system overwrites the Last Depreciated Date (DEP_DATE) with the date specified on the Depreciation tab (31/03/2009).

  Diminishing Value Method

Diminishing Value is usually used for tax depreciation, so some of the fields that are being used/updated are different from the Straight Line Method. However, if Diminishing Value was used for book/accounting depreciation, the fields would be the same.

Apart from that, the only difference between Straight Line and Diminishing Value is with step D. The year-to-date depreciation charge is based on the Asset Cost (START_VALUE) if a year-end has not been performed. Otherwise, if a year-end roll has been performed, it will be based on the Net Book Value at the start of the current financial year (YR1_TAXVAL).

Using the Diminishing Value method, step D therefore becomes:

4. Calculate the Year-to-Date depreciation charge =

   Depn Days (B) / 365 × Depn Rate (DEPRATETAX) × Asset Cost (START_VALUE) or NBV at start of year (YR1_TAXVAL)