Examples of Transfer to Derogatory Depreciation

This document presents examples illustrating these three scenarios for using a derogatory depreciation of fixed assets:

You can refer to these examples to verify that the depreciation proposal created in 'Fixed Asset. Transfer to Derogatory' (FAS700) is correct.

Transfer from Declining Balance Depreciation

Current Situation

Depreciation Plan (Declining Balance, 96 Periods)

As seen in the table, the total depreciated amount at the end of the third year, when the transfer to derogatory depreciation will be made, is 810,058.59.

Year

Depreciation Amount

Total Depreciated

Residual Value

1

375,000.00

375,000.00

825,000.00

2

257,812.50

632,812.50

567,187.50

3

177,246.09

810,058.59

389,941.41

4

121,856.69

931,915.28

268,084.72

5

83,776.47

1,015,691.76

184,308.24

6

61,436.08

1,077,127.84

122,872.16

7

61,436.08

1,138,563.92

61,436.08

8

61,436.08

1,200,000.00

0.00

Preparation for Transfer

Transfer

Perform the transfer in 'Fixed Asset. Transfer to Derogatory' (FAS700).

Results

Depreciation Plan for Associated Depreciation Type, ID 11 (Linear Depreciation, 60 Periods)

As seen in the table below, the total depreciated amount is 720,000.00 after the transfer.

Year

Depreciation Amount

Total Depreciated

Residual Value

1

240,000.00

240,000.00

960,000.00

2

240,000.00

480,000.00

720,000.00

3

240,000.00

720,000.00

480,000.00

4

240,000.00

960,000.00

240,000.00

5

240,000.00

120,0000.00

0.00

Depreciation Plan for ID 91 (Derogatory Depreciation Type, 96 Periods)

The depreciation plan for the depreciation type with ID 91 now displays the derogatory depreciation, that is, the declining balance depreciation (ID 20) minus the linear depreciation (ID 11). (The actual declining balance depreciation used in the formula is not displayed in M3.)

Year

Depreciation Amount

Total Depreciated

Residual Value

1

135,000.00

17,812.50

1,065,000.00

2

17,812.50

152,812.50

1,047,187.50

3

–62,753.91

90,058.59

1,109,941.41

4

–118,143.31

–28,084.72

1,228,084.72

5

–156,223.53

–184,308.24

1,384,308.24

6

61,436.08

–122,872.16

1,322,872.16

7

61,436.08

–61,436.08

1,384,308.24

8

61,436.08

0.00

1,200,000.00

Derogatory Adjustment

The derogatory adjustment (90,058.59) is deducted from the total depreciated amount.

Transfer from Linear Depreciation

Current Situation

Preparation for Transfer

Transfer

Perform the transfer in 'Fixed Asset. Transfer to Derogatory' (FAS700).

Results

Depreciation Plan for ID 11 (Linear Depreciation, 60 Periods)

The table below displays the depreciation plan for the associated depreciation type based on linear depreciation, with a total depreciated amount of 720,000 at the end of the third year.

Year

Depreciation Amount

Total Depreciated

Residual Value

1

240,000.00

240,000.00

960,000.00

2

240,000.00

480,000.00

720,000.00

3

240,000.00

720,000.00

480,000.00

4

240,000.00

960,000.00

240,000.00

5

240,000.00

1,200,000.00

0.00

Depreciation Plan for ID 91 (Derogatory Depreciation Type, 96 Periods)

The depreciation plan for the depreciation type with ID 91 now displays the derogatory depreciation, that is, the original linear depreciation minus the new linear depreciation. (The original linear depreciation used in the formula is not displayed in M3.)

Year

Depreciation Amount

Total depreciated

Residual Value

1

–90,000.00

–90,000.00

1,290,000.00

2

–90,000.00

–180,000.00

1,380,000.00

3

–90,000.00

–270,000.00

1,470,000.00

4

–90,000.00

–360,000.00

1,560,000.00

5

–90,000.00

–450,000.00

1,650,000.00

6

150,000.00

–300,000.00

1,500,000.00

7

150,000.00

–150,000.00

1,350,000.00

8

150,000.00

0.00

1,200,000.00

Derogatory Adjustment

The derogatory adjustment (270,000) is added to the total depreciated amount.

Change Lifetime for Derogatory Depreciation

Current Situation

Depreciation Plan (Linear Depreciation, 96 Periods)

At the end of the third year, the total depreciated amount based on the linear depreciation is 450,000.

Year

Depreciation Amount

Total Depreciated

Residual Value

1

150,000.00

150,000.00

1,050,000.00

2

150,000.00

300,000.00

900,000.00

3

150,000.00

450,000.00

750,000.00

4

150,000.00

600,000.00

600,000.00

5

150,000.00

750,000.00

450,000.00

6

150,000.00

900,000.00

300,000.00

7

150,000.00

1,050,000.00

150,000.00

8

150,000.00

1,200,000.00

0.00

Depreciation Plan (Declining Depreciation, 96 Periods)

As a basis for determining the derogatory depreciation, the depreciation according to the declining balance method is calculated in the background. However, this depreciation plan is not displayed in M3. The total depreciated amount at the end of the third year is 810,058.59.

Year

Depreciation Amount

Total Depreciated

Residual Value

1

375,000.00

375,000.00

825,000.00

2

257,812.50

632,812.50

567,187.50

3

177,246.09

810,058.59

389,941.41

4

121,856.69

931,915.28

268,084.72

5

83,776.47

1,015,691.76

184,308.24

6

61,436.08

1,077,127.84

122,872.16

7

61,436.08

1,138,563.92

61,436.08

8

61,436.08

1,200,000.00

0.00

Depreciation Plan (Derogatory Depreciation, 96 Periods)

The total depreciated amount for the derogatory depreciation at the end of the third year is 360,058.59.

Year

Depreciation Amount

Total Depreciated

Residual Value

1

225,000.00

225,000.00

–225,000.00

2

107,812.50

332,812.50

–332,812.50

3

27,246.09

360,058.59

–360,058.59

4

–28,143.31

331,915.28

–331,915.28

5

–66,223.53

265,691.76

–265,691.76

6

–88,563.92

177,127.84

–177,127.84

7

–88,563.92

88,563.92

–265,691.76

8

–88,563.92

 

0.00

Preparation for Transfer

Results

Depreciation Plan for ID 11 (Linear Depreciation, 60 Periods)

The table displays the depreciation plan for the associated depreciation type (ID 11) with a total depreciated amount of 720,000 at the end of the third year.

Year

Depreciation Amount

Total Depreciated

Residual Value

1

240,000.00

240,000.00

960,000.00

2

240,000.00

480,000.00

720,000.00

3

240,000.00

720,000.00

480,000.00

4

240,000.00

960,000.00

240,000.00

5

240,000.00

1200,000.00

0.00

Derogatory Depreciation Plan for ID 91 (96 Periods)

The table displays the new derogatory depreciation with a total depreciated amount of 90,058.59 at the end of the third year.

The values in this depreciation plan are based on the following formula: the total depreciated amount calculated according to the declining balance method at the end of the third year (that is, 810,058.59) minus the total depreciated amount calculated for the associated depreciation type ID 11 (720,000).

Year

Depreciation Amount

Total Depreciated

Residual Value

1

135,000.00

135,000.00

1,065,000.00

2

17,812.50

152,812.50

1,047,187.50

3

–62,753.91

90,058.59

1,109,941.41

4

–118,143.31

–28,084.72

1,228,084.72

5

–156,223.53

–184,308.24

1,384,308.24

6

61,436.08

–122,872.16

1,322,872.16

7

61,436.08

–61,436.08

1,384,308.24

8

61,436.08

0.00

1,200,000.00

Derogatory Adjustment

The derogatory adjustment of 270,000 – that is, the total depreciated amount for the original derogatory depreciation minus the total depreciated amount for the new derogatory depreciation – is deducted from the total depreciated amount.

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