Using Depreciation Methods

LN supplies depreciation methods that define types of depreciation. You apply these methods to the asset books when you set up categories in the Category (tffam2100s000) session. You cannot modify the methods provided by LN, but you can create methods to depreciate assets for which existing methods are not suitable. If you run depreciation for assets with a method you created, LN uses the percentages in the method to calculate depreciation.

LN determines what depreciation formula to use based on the method you assign to each of an asset's related books. The following methods are available:

Straight-line method

Uses the straight-line formula to depreciate an asset in its related books. You specify an amount to depreciate over the course of the asset's life. For more information on the straight-line formula, refer to To calculate Remaining Life depreciation

Note:

Some declining balance and MACRS methods switch to the straight-line method at some point during the asset's life. For a list of these methods, refer to To calculate Declining Balance with Switch to Straight Line depreciation.

Some declining balance methods switch to straight line at some point during the asset's life. For a list of these methods, refer to To calculate Declining Balance with Switch to Straight Line depreciation.

Several sum of years digits methods switch to the straight line method at some point during the asset's life. For a list of these methods, refer to To calculate sum of years digits with switch to SL depreciation.

Declining balance method

This method uses the declining balance formula to depreciate an asset in its related books. Over the course of the asset's life, the amount the asset depreciates will reduce. For more information on the declining balance formula, refer to Calculating Declining Balance depreciation.

Note:

Some declining balance methods switch to straight line at some point during the asset's life. For a list of these methods, refer to To calculate sum of years digits with switch to SL depreciation.

Several sum of years digits methods switch to the straight line method at some point during the asset's life. For a list of these methods, refer to To calculate sum of years digits with switch to SL depreciation.

Example

Declining balance with a switch to straight-line method

This method uses the declining balance with a switch to straight line formula to depreciate an asset in its related books. The asset will depreciate in its related books with the declining balance method until the point where it is more beneficial to depreciate the asset by using the straight-line method. At this point,

LN automatically switches the form of depreciation to straight line. For more information on the declining balance formula, refer to To calculate sum of years digits with switch to SL depreciation.

Note: Several sum of years digits methods switch to the straight line method at some point during the asset's life. For a list of these methods, refer to To calculate sum of years digits with switch to SL depreciation.

Sum of years digits method

There are multiple depreciation methods that use the sum of years digits formula. You can assign one of these methods to any of an asset's related books. For more information on the sum of years digits formula, refer to To calculate Sum of Year Digits depreciation.

Note: Several sum of years digits methods switch to the straight line method at some point during the asset's life. For a list of these methods, refer to To calculate sum of years digits with switch to SL depreciation.

Sum of years digits with a switch to straight-line method

There are multiple depreciation methods that use the sum of years digits formula. You can assign one of these methods to any of an asset's related books. For more information on the sum of years digits formula, refer to To calculate sum of years digits with switch to SL depreciation.

Units of production method

There is only one method that uses the units of production formula. To use units of production as your depreciation calculation, you must assign the UOP method to one or more of an asset's related books. For more information on depreciation calculations for units of production, refer to To calculate Units of Production depreciation.

Fixed amount method

The depreciation is a fixed yearly amount that you assign. The asset depreciates in its related books for this amount until the end of the asset life or until the asset's salvage value is reached.

Annuity method

The depreciation amount is a fixed amount per period, but increases progressively for the annuity. The annuity consists of interest and depreciation.

LN does not process the interest amounts, nor does it calculate interest on the remainder value. For more information on the annuity calculations, refer to Calculating Annuity Depreciation.

First period depreciation method

The depreciation of an asset in its related books occurs entirely in the first period.

NBV-oriented depreciation method

The asset value is calculated by subtracting the accumulated depreciation from the current cost. The net book value is the asset value stored in the asset's related books. When you calculate or update the depreciation, or when you adjust either the cost or accumulated depreciation, the value for every asset's related book changes. If the Federal Tax book type is used, the section 179 value is also subtracted from the above calculation. For more information on calculating the NBV-oriented depreciation, refer to Net Book Value (NBV)-oriented depreciation.

Custom method

This method is a freely definable depreciation method based on percentages, monthly or yearly, to cover user-specific requirements.

None method

No depreciation method is defined. You can use this method when an asset cannot be depreciated, for example: real estate.

Depreciation Based on Guarantee Factor

The Depreciation Based on Guarantee Factor depreciation method is introduced to handle legal regulations in Japan for asset depreciation.

The Depreciation Based on Guarantee Factor depreciation method is similar to the Declining Balance method till the asset book value equals the Guarantee Value.

When the asset book value depreciates to a value less than the Guarantee Value, the depreciation is calculated in one of the following methods:

The Straight Line method uses the number of years specified in No of Years Beyond Guarantee Factor field.
Using the percentage value specified in the Revi Dep Beyond Guarantee Factor field, instead of the value defined in the Declining Bal. Percent field.

Guarantee Value

The Guarantee Value is defined in the Asset Books (tffam1510m000) session.

The Guarantee value is calculated as follows:

Guarantee Value = Original Cost of the Asset * percentage of Guarantee Factor.

When you assign Depreciation Based on Guarantee Factor depreciation method to an asset book in the Depreciation Method (tffam7110s000) session, the Guarantee Value field is enabled in the Asset Books (tffam1510m000) session.

The Guarantee Factor is specified in the Depreciation Method (tffam7110s000) session.

The Guarantee Value does not change for an asset book cost adjustment. The value is fixed and is calculated when you capitalize the asset. When an asset is transferred partially, the guarantee value proportionate to the asset's original cost is also transferred.