SECTIONSDepreciation Methods
The Depreciation Methods tab contains the ways in which you can calculate depreciation schedules for an asset in Fixed Asset Management. Fixed Asset Management has several default depreciation methods described in the sections that follow.
You can also create your own depreciation methods.
Straight Line
In this method, the estimated depreciation per year is calculated using the formula:
Asset Cost - Salvage Value / Service Life in Years
Alt. Straight Line - Days Pro Rata
In this method, a variant of straight line depreciation, the depreciation is calculated based on how many days of the period (month or quarter or year) the fixed asset has been in service. The depreciation amount for the first period is adjusted using the number of days that the fixed asset has been in service. An extra period is added at the end of the fixed asset's service life containing the outstanding depreciation amount.
Half-Year Convention
In this method, the estimated depreciation per year is calculated as described in Half-Year Convention Method.
Double Declining Balance
In this method, the estimated depreciation per year is calculated using the formula:
2 * 1/Service Life in Years * Current Book Value
150% Declining Balance
In this method, the estimated depreciation per year is calculated using the formula:
1.5 * 1/Service Life in Years * Current Book Value
250% Declining Balance (Germany COVID-19)
In this method, the estimated depreciation per year is calculated using the formula detailed in 250% Declining Balance (Germany COVID-19).
Sum of the Years Digits
This method is an accelerated depreciation method similar to double declining balance. This results in greater depreciation of the asset earlier in the asset's useful life. In later years the asset will depreciate by a lower amount. For instance, a production machine is purchased for $25,000 and will be sold for $2000 after five years, the asset will have depreciated by $23,000. This depreciation amount is then spread over the useful life of the asset.
The first step in calculating the depreciation for each year is to add the digits of the asset's useful life together. In our example, the useful life of the asset is five years:
1+2+3+4+5=15
The depreciation is then calculated by dividing the amount the asset is to be depreciated by fractions of the total digits of the asset's life. For instance:
| Year | Depreciation Calculation | Total Depreciation for the Year |
|---|---|---|
| 1 | (5/15) * $23,000 | $7666.66 |
| 2 | (4/15) * $23,000 | $6133.33 |
| 3 | (3/15) * $23,000 | $4600 |
| 4 | (2/15) * $23,000 | $3066.66 |
| 5 | (1/15) * $23,000 | $1533.33 |
Units of Production
This method calculates an estimated depreciation based on the estimated units of production and the depreciation per unit of production.
The formula used to calculate the depreciation per unit of production is:
Asset Cost - Salvage Value / Estimated Units of Production
The estimated units of production per depreciation schedule is calculated using the formula:
(Service Life in Units / Service Life in Years) / Time Period Basis (i.e. 1,4 or 12)
The depreciation schedule amount (estimated) is then calculated using the formula:
Depreciation per Unit of Production * Units of Production per Depreciation Schedule
For example, a production machine is purchased for $2,300 and has a salvage value is $5. It has a service life of five years, and the Time Period Basis of Monthly. The asset's Service Life in Units is expected to be 10,000.
The depreciation per unit of production is: 2300 - 5 / 10000 = 0.2995
The estimated units of production per depreciation schedule is: (10000 / 5) / 12 = 166.66
The depreciation schedule amount (estimated) is therefore: 0.2295 * 166.66 = 38.2495 which is rounded up to $38.25.
You cannot use the Units of Production depreciation method on a tax book.
Restrictions
This section describes calculation issues that might affect the way in which you use Fixed Asset Management.
Changing Depreciation Schedules
You can change the Depreciation Amount on depreciation schedules that have not yet been posted to your financial accounting system. When you change the Depreciation Amount on a depreciation schedule, the Depreciation Amount on the other depreciation schedules is not recalculated to reflect this change.
Date in Service
When you generate depreciation for an asset where the Date in Service is the 14th of the month or later, no depreciation is calculated for that month.
Service Life
You must enter a Service Life in Years in whole numbers when depreciating an asset using the Sum of the Years Digits depreciation method.
Units of Production
Production is estimated based on the values in the Service Life in Years and Service Life in Units fields. The resulting depreciation schedules contain the same Depreciation Amount that the Straight Line depreciation method produces. You can change the value in the Units of Production (Actual) field of a pending depreciation schedule and the Depreciation Amount is recalculated to reflect that value. The Depreciation Amount on the other depreciation schedules is not recalculated to reflect this change.