Depreciation Calculations

Salvage Value

If you enter a salvage value on the Fixed Asset Depreciation form, all depreciation schedules (columns) for that asset will use that value. This occurs when the system determines the amount of depreciation necessary to reduce the carrying value of the asset to the estimated residual value (salvage value) during the last year of its useful life.

After each depreciation method, the following equation occurs:

If c-amt > t-amt - s-amt - d-amt

Then c-amt = t-amt - s-amt - d-amt

where:

c-amt = Current depreciation

t-amt = Total value of the asset

s-amt = Salvage value

d-amt = Accumulated depreciation + bonus depreciation

The methods are correct, but you should have the option not to calculate salvage value into all of the schedules for each asset.

Salvage Value - Bonus Depreciation

For Fixed Asset Depreciation Table methods, if you are considering salvage value, you must enter it in the Bonus Depr field of the depreciation schedule (column) using that method. You only use the amount in the Salvage Value field for calculating the depreciation amount during the last year of the asset's useful life.

The equation is:

c-amt = (t-amt - facepr.bonus-depr-$)*fadeptab.percent-yr[k]*.01

where:

c-amt = Current depreciation

t-amt = Total value of the asset

fadepr.bonus-depr-$ = Bonus depreciation amount

fadeptab.percent-yr[k] = The percent of the asset value to be depreciated in year 'k'

This equation had contained salvage value instead of bonus depreciation amount, but was changed to use bonus depreciation correctly and to allow the user the option to include or exclude salvage value on a particular schedule.

Bonus Depreciation

To use bonus depreciation correctly, you must use a Depreciation Table method. Most methods do not consider bonus depreciation until the equation:

If c-amt > t-amt - s-amt - d-amt

Then c-amt = t-amt - s-amt - d-amt

where:

c-amt = Current depreciation

t-amt = Total value of the asset

s-amt = Salvage value

d-amt = Accumulated depreciation + bonus depreciation

You must subtract bonus depreciation from the total value of the asset before calculating the current depreciation amount. As in this equation:

c-amt = (t-amt - fadepr.bonus-depr-$) * fadeptab.percent-yr[k] * .01.

where:

c-amt = Current depreciation

t-amt = Total value of the asset

fadepr.bonus-depr-$ = Bonus depreciation amount

fadeptab.percent-yr[k] = The percent of the asset value to be depreciated in year 'k'

Another problem for bonus depreciation is the equation:

If c-amt > t-amt - s-amt - d-amt

Then c-amt = t-amt - s-amt - d-amt

where:

c-amt = Current depreciation

t-amt = Total value of the asset

s-amt = Salvage value

d-amt = Accumulated depreciation + bonus depreciation

By having d-amt = accumulated depreciation plus bonus depreciation, this equation assumes that you have not incorporated the bonus depreciation into the accumulated depreciation amount.

To solve the above problems:

• Add a field to each depreciation schedule (column) for salvage value.
• For each depreciation method, include the following statement in the equation:

  (t-amt - fadepr.xxx - fadepr.bonus-depr-$)

  where:

  t-amt = Total value of the asset

  fadepr.xxx = The salvage value for a specific schedule

  fadepr.bonus-depr-$ = The bonus depreciation for a specific schedule

• Remove bonus depreciation from the following:

  d-amt = accumulated depreciation and bonus depreciation.

Sum of the Year's Digits

When using the Sum-of-the-Year's Digits depreciation method, the system uses the following equation:

c-amt = (t-amt - s-amt) * k / sum-of-yrs.

where:

c-amt = Current depreciation

t-amt = Total value of the asset

s-amt = Salvage value

sum-of-yrs = Sum of the year's digits

k = The current year's digit

SYD is not supposed to consider salvage value until the following equation:

If c-amt > t-amt - s-amt - d-amt

Then c-amt = t-amt - s-amt - d-amt

where:

c-amt = Current depreciation

t-amt = Total value of the asset

s-amt = Salvage value

d-amt = Accumulated depreciation + bonus depreciation

Period Basis Using Declining Balance

When depreciating on a period basis using the Declining Balance methods, the system uses the following equation:

c-amt = (t-amt - d-amt) * p-amt * (1 / (t-units / perds)) / perds

where:

c-amt = Current depreciation

t-amt = Total value of the asset

d-amt = Accumulated depreciation + bonus depreciation

p-amt = Percent amount (calculated)

t-units = Total life units

perds = Number of accounting periods

The depreciation amount for each period of a given year will not be equal.