Define Depreciation Type for a Fixed Asset Type

This document explains how you select and connect depreciation types to a fixed asset type, and then configure for the desired depreciation method.

Outcome

Default values for a depreciation type, such as depreciation method, are defined for a Fixed Asset (FA) type.

The default values are proposed when specifying a new asset in (FAS001); that is, they are based on the FA type. The values are used as a basis for calculating the depreciation plan in 'Fixed Asset. Open' (FAS010).

File (FFSVDM) is updated.

Before you start

Follow these steps

  1. Start 'FA Type. Connect Depreciation Types' (FAS077/B).

  2. Specify the depreciation type ID. Click New.

  3. On the E-panel, fill in the depreciation method (required). Press Enter.

  4. Select the value types for acquisition cost, accumulated depreciation, accumulated depreciation YTD, and depreciation plan (required values). Press Enter.

  5. Based on selected the depreciation type (above), select one of these alternatives and press Enter:

    • To define linear method, fill in the lifetime.
    • To define declining balance method, fill in the depreciation share, stop value, and residual value.
    • To define auto-change method (1), fill in the lifetime, depreciation share, residual value, and auto-change method.
    • To define auto-change method (2), fill in the lifetime, depreciation share, residual value, and auto-change method.
    • To define double declining method, fill in the coefficient template and depreciation share.
    • To define user-defined method, fill in the depreciation share.
  6. Select semi-annual depreciation (optional). Press Enter.

Parameters to set

Program ID/Panel Field The field indicates …

Basic Values

(FAS077/B) Depreciation type

…a general type of depreciation, controlling period, range and so on.

(FAS077/E) Depreciation method

…which method should be connected to the depreciation type.

These are the valid alternatives:

0 = No depreciation

1 = Linear depreciation based on financial life span

2 = Declining balance depreciation (percentage depreciation based on the remaining value from the previous year)

3 = According to user-defined depreciation plan

4 = Modified accelerated cost recovery system – formula

5 = Modified accelerated cost recovery system – table

6 = Rental revenue percentage

7 = Usage-based depreciation

8 = Financial Agreement

Alternative 8 is used with the Report Type 3 - Financial Agreement in (FAS050).

9 = Other local depreciation used for market-specific depreciation method.

Based on the linear or declining balance methods, these are the additional depreciation methods:

  • Derogatory depreciation
  • Auto-change 1 depreciation
  • Auto-change 2 depreciation
  • Double declining depreciation

Alternatives 4 and 5 can only be used if the MACRS field in (FAS050) is set to 1 and 'Period range' is set to 1-'Annual'. In (FAS002), 'Economic life', 'Bonus rate', 'Acquisition - depreciation adjustment' and Coefficient Template should be used. Alternative 5 automatically creates a named user-defined plan.

Alternative 9 is used to indicate that the depreciation method used is market-specific and when logged on to the market-specific division, 'Associated depreciation method' can be selected.

Associated depreciation method is connected to Depreciation Method 8 - Financial Agreement.

Alternative 3 - Operating lease.

(FAS077/E) Acquisition depreciation adjustment

…the acquisition depreciation adjustment made on the fixed asset.

These are the valid alternatives:

0 = No adjustment

1 = Mid-year

2 = Mid-quarter

3 = Mid-month

If alternative 1 is selected, the acquisition depreciation adjustment is used with linear, declining, or user-defined depreciation methods. It will calculate depreciation from the start period of the half-year of the fiscal year in which the asset was activated. The start date is automatically set to the first period day of the corresponding half-year.

When the acquisition depreciation adjustment is used with MACRS formula or MACRS user-defined depreciation method, the adjustment parameter is automatically set to 0.50.

Alternative 2 is used for MACRS formula and MACRS user-defined depreciation methods.

When mid-quarter adjustment is used, the value of the parameter is automatically set to 0.25.

Alternative 3 is used for MACRS formula and MACRS user-defined depreciation methods.

(FAS077/E) Value type acquisition cost

…which value should be used as the base for linear depreciation (depreciation method 1 in 'Depreciation method' above).

Acquisition cost is the amount the company originally paid for the asset.

The value type is defined on 'FA Value Type. Open' (FAS060/B).

(FAS077/E) Lifetime in months

…the productive lifetime of the asset, expressed in months.

Note that the lifetime should only be filled in if linear or auto-change method is used.

(FAS077/E) Depreciation share

…a percentage of the residual value.

The depreciation is based on a percentage of the residual value, which means that the amount is never fully written off. (See 'Stop value' below).

Example: An asset has been purchased for USD 100,000 with a depreciation percentage of 30%. The yearly write-offs and the remaining values are:

  • For year 1, USD 30,000 will have a residual value of US 70,000.
  • For year 2, USD 21,000 will have a residual value of US 49,000.
  • For year 3, USD 14,700 will have a residual value of US 34,300.
  • For year 4, USD 10,290 will have a residual value of US 24,010.
  • For year 5, etc.

Note that the depreciation share should only be filled in if declining balance is used.

(FAS077/E) Stop value

…at what residual value the depreciations are to be stopped, when using the declining balance method. When the depreciation falls below the stop value, the write-off stops. The remaining amount can be processed in 'Residual value' (see below).

If the field is left blank, the stop value must be specified on (FAS002/E).

(FAS077/E) Residual value

…a value that determines how the remaining amount will be processed. The declining balance depreciation means that the amount cannot be fully written off. Using alternative 2, the remaining amount is depreciated to zero.

These are the valid alternatives:

1 = The residual value remains

2 = The residual value is posted as an extra depreciation.

(FAS077/E) Automatic change of depreciation method

…whether the declining balance should be changed automatically (auto change) to linear depreciation at a certain stage.

This method is used for large investments, and the purpose is to maximize the depreciation in the first years of an asset's lifetime.

These are the valid alternatives:

1 = No change

2 = Yes, auto change to linear depreciation when the depreciated declining amount is less than the linear amount. This method was originally developed for Germany.

3 = Yes, auto change when the depreciated declining amount is less than the net value divided by the remaining number of years. This method was originally developed for France. This method is not the standard linear depreciation, but similar to it.

(FAS077/E) Coefficient template

…the coefficient used for double declining depreciation. The method is based on the declining balance.

The formula is:

(1/Number of years) x Coefficient

Example: 5 years and coefficient 2 = (1/5 x 2) = 0.4 (40%)

The coefficient is defined on 'Depr. Template. Open for Declining Depreciation' (FAS025/B).

This method was originally designed for France.

(FAS077/E) Depreciation plan

…a user-defined plan with, for example, the number of years and distribution method.

The plan is defined in 'FA Depreciation Plan. Open' (FAS055).

If the user-defined method is used, you should only specify the depreciation plan.

(FAS077/E) Value type accumulated depreciation

…the value type for the accumulated depreciation of all write-offs made before this year.

The value type, as for value type YTD below, is updated in the annual run, when values from this year's write-offs are transferred to this value type (see below).

This value type, as well as the value type for YTD and depreciation plan (below), must be unique for each depreciation type.

(FAS077/E) Value type accumulated depreciation YTD

…the value type for the accumulated depreciation of all write-offs during this year.

(FAS077/E) Depreciation plan

…a plan for the write-offs, based on the plan in (FAS010).

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