Depreciation Method (tffam7110s000)

Use this session to define depreciation method codes that are used to calculate depreciation over the life of the asset. These codes and other parameters indicate how quickly and by what percentages an asset depreciates in its asset books throughout the asset's life cycle.

For assets in an MACRS group account, the depreciation method also specifies the life of the assets. The life for assets in ADR accounts is specified separately from the depreciation method.

LN supplies depreciation methods that define types of depreciation. You can use these methods when you set up categories in the Category (tffam2100s000) session. You can also create your own depreciation methods to depreciate assets for which existing methods are not suitable.

When you create a method, you enter a unique label and a description, and you specify the percentage of depreciation for each year in a range of up to 60 years. When you run depreciation for assets that use a method you created, LN uses the corresponding percentages.

You can create a free definable method by setting the Depreciation Method field to Custom Method. You have to decide whether the custom method is monthly or yearly by setting the Rate Table Type field to Monthly or Yearly.

For a monthly custom method the Avg. Convention field must be set to None or Mid-Month. For a monthly custom method define the monthly depreciation rates by using the Monthly Rates (tffam7150m000) subsession. For a yearly custom method define the yearly depreciation rates by using the Yearly Rates (tffam7165m000) subsession.

Field Information

Depreciation Code

The depreciation code is a unique identifier that is used to depreciate assets. Each code has a method and optionally, a life, depending on the method used. Life is recorded on the asset book.

Description

The description or name of the code.

Depreciation Method

Select the suitable depreciation method and fill the appropriate fields. The field that you cannot fill for the selected method are disabled.

The following depreciation methods are available

Note: 

To create a depreciation code for straight line depreciation or accelerated depreciation of Czech Republic, this field must be set to Czech Tax Depreciation.

To create a depreciation code for straight line depreciation or accelerated depreciation of Slovakia, this field must be set to Slovak Depreciation.

Avg. Convention

Identifies the averaging convention associated with the depreciation method. Averaging conventions are used to determine when the recovery period for an asset begins and ends. The recovery period determines how much depreciation, and the associated tax deduction, an asset is eligible for in the first and last years of service. LN uses the calculated start and end date, rather than the asset's in-service date, to calculate depreciation amounts for the first and last year.

The following applies:

  • If Mid Month or None is selected, and the Rate Table Type field is Monthly, the Monthly Rates button is activated.
  • If Modified Half Year, Mid Quarter, Half Year, or None is selected, and the Rate Table Type field is Yearly, the Yearly Rates button is activated.

You can switch from a monthly rate to a yearly rate for a depreciation method as long as the method is not in use. Once the depreciation method is assigned to an asset book, the yearly rates can be viewed, but not edited.

Disposal Conventions

The convention used for the disposal of an asset. Disposal conventions are used to determine the last depreciated period of an asset. The recovery period determines the number of depreciation periods that must be reversed during the disposal or the number of depreciations that must be calculated before the disposal.

None

No specific conventions apply to the disposal of the asset.

Disposal Period

The period in which the disposal date occurs must be depreciated completely.

Previous Period

The period before the period in which the disposal date occurs must be depreciated completely

First / second Half Year

If the disposal date is between 01/01 and 30/6 of a normal calendar year, the depreciations must be made for this half-year before the disposal. Ifn the disposal date is between 01/07 and 31/12, the second half-year must be depreciated completely before disposal.

Year of Disposal

The year in which the disposal date occurs must be depreciated completely before disposal.

Previous Year

In the year of the disposal no depreciation must be made at all.

Capping

If the depreciation method is NBV-oriented Depreciation, you must select a capping method.

This field can have the following values:

  • Twice - Straight Line Rate

    If two times the linear percentage is less than the entered declining balance percentage, LN uses two times the linear percentage for depreciation calculations.

    If two times the linear percentage is more than the entered declining balance percentage, LN uses the entered declining balance percentage for depreciation calculations.

  • Triple - Straight Line Rate

    If three times the linear percentage is less than the entered declining balance percentage, LN uses three times the linear percentage for depreciation calculations.

    If three times the linear percentage is more than the entered declining balance percentage, LN uses the entered declining balance percentage for depreciation calculations.

  • Not Applicable

    LN uses the entered declining balance percentage for depreciation calculations.
Calculation Base

If the Depreciation Method is Declining Balance, this field indicates whether LN declines the values yearly or periodically.

If the Depreciation Method is other than Declining Balance, this field contains Not Applicable.

Switch to Cost Percentage

If this check box is selected, the depreciation methos is switched to cost percentage.

Note: This field is enabled only if Depreciation Method is set to NBV-oriented Depreciation.

Based on Book Value

If this check box is selected, LN calculates the depreciation based on the asset's net book value.

If this check box is cleared, LN calculates the depreciation based on the asset's current costs.

If the Depreciation Method is Custom Method, you can select this check box. For all other values of the depreciation method, this field is not applicable.

Include Disposal Date for Depreciation Calculation

If this check box is selected, LN includes the disposal date of the asset to calculate depreciation amount.

Depreciate Last Year in Service

If this check box is selected, you can depreciate the asset in its last year of service. If this check box is cleared, no depreciation will occur in the last year of service.

Declining Bal. Percent

The declining balance percentage is used to calculate each year's total book depreciation by applying a constant percentage to the asset's net book value. The declining balance methods allocate the largest portion of an asset's cost to the early years of its useful life.

Allowed values

If the depreciation method is Declining Balance (US), the percentage must be between 1% and 300%. If the depreciation method is NBV-oriented Deprecation (Europe), the percentage must be between 1% and 30%.

Note: If the asset for which you are calculating depreciation contains an averaging convention, LN adjusts the depreciation expense for the first half-year, quarter, or month calculation.

Declining balance (DB) has two variations based on the calculation mode in use for the asset in its related books:

  • DB Daily
  • DB Periodic

To calculate depreciation using declining balance method refer to the following example:

  • Calculating Declining Balance depreciation
Switch to SL

When you want to maximize the tax deduction for depreciation expense on your company's income tax returns, you can select this check box. This formula is used to switch the depreciation method from declining balance, sum of year digits, or NBV-oriented depreciation, to straight line. The first method is used for the first portion of an asset's life, then LN switches to the straight line formula to depreciate the asset to its salvage value based on its remaining life.

The asset will depreciate with one of the first methods until the point where it is more beneficial to depreciate the asset using the straight line method. Thus the switch occurs automatically in the first period in which the straight line remaining value calculation results in a larger depreciation amount in a larger depreciation amount than the amount based on the applied first method.

For Declining Balance and NBV-oriented Depreciation the remaining-life/remaining-value or normal straight line method is used according to the SL Switch Criteria field of the FAM Parameters (tffam0100s000) session. For sum of year digits, only the normal straight line method is used.

This method lets you book a large portion of an asset's depreciation in the early years of its life, then depreciate it to its salvage value. In the declining balance formula without a switch to straight line, the salvage value is disregarded.

Note: If the asset for which you are calculating depreciation contains an averaging convention, LN adjusts the depreciation expense for the first half-year, quarter, or month calculation.
Interest Rate

The rate of interest is used to calculate the depreciation of the asset according to the Annuity Depreciation method.

Allowed values

A value between 1 - 100.

Fixed Amount

The fixed amount that must be depreciated annually.

If the Depreciation Method field is Fixed Amount, you can enter the fixed amount in this field.

You can enter a fixed amount in each of the home currencies. To select a home currency choose the View Other Currencies command.

Fixed Amount

home currency

From the Tools menu, choose Rotate Currency to switch home currencies.

Guarantee Factor

The percentage value to calculate the Guarantee Value of the asset.

Note: This field is enabled, when you set the Depreciation Method field to Depreciation Based on Guarantee Factor.

No of Years Beyond Guarantee Factor

The number of years to calculate the depreciation of an asset. The depreciation must be calculated when the asset value is equal to or less than the Guarantee Value defined in the Asset Books (tffam1510m000) session.

Note: This field is enabled when you set the Depreciation Method field to Depreciation Based on Guarantee Factor.

Revi Dep Beyond Guarantee Factor

The percentage value to calculate the depreciation of an asset. The depreciation must be calculated using this percentage when the asset value is equal or less than the Guarantee Value defined in the Asset Books (tffam1510m000) session.

Note: The field is enabled when you set the Depreciation Method field to Depreciation Based on Guarantee Factor.

Salvage in last Period

If this check box is selected, when the accumulated depreciation is greater than the cost minus salvage value, the depreciation amount is corrected with the salvage value.

Cost Percentage

The percentage used to calculate depreciation, as a percentage, of the current asset cost.

Note: This field is applicable only if the Depreciation Method is set to Cost Percentage.

Apply Cost Adjustment in next Period

If this check box is selected, the depreciation calculation considers all cost changes in a certain period that must be applied on the start date of the next period.

Tax Method Type

The type of tax method used to calculate the asset depreciation.

Allowed values

Depreciation Tax Method Type

Note: 

To create a depreciation code using a depreciation method for Czech Republic or Slovakia:

  • For straight line depreciation, this field must be set to N/A.
  • For accelerated depreciation, this field must be set to Months.
Rate Table Type

If you select N/A, there is no rate table used.

If you select Monthly, you define the monthly rate table for the recovery years of the asset by using the Monthly Rates (tffam7150m000) subsession.

If you select Yearly, you define the yearly rate table for the recovery years of the asset by using the Yearly Rates (tffam7165m000) subsession.

By default, the values of the rate table in the subsession are filled with zero.

When you use a method which has a rate table, the depreciation is calculated according to rate table, regardless of which depreciation method the table represents.

Class Life YY/MM

The class life is used as the default value for the asset life of asset books if the value is greater than zero.

If class life is zero then the asset life of the Category (tffam2100s000) subsession is used as default value for the asset life of asset books.

Financial - U.S.

If this check box is selected, the depreciation method is valid for the Financial- U.S. book type.

Federal Tax - U.S. (Standard)

If this check box is selected, the depreciation method is valid for the Federal tax- U.S. book standard type.

Federal Tax - U.S. (ACE)

If this check box is selected, the depreciation method is valid for the Federal tax- U.S. book type adjusted current earnings (ACE).

Federal Tax - U.S. (AMT)

If this check box is selected, the depreciation method is valid for the Federal tax book type alternative minimum tax (AMT).

Other Tax - U.S.

If this check box is selected, the depreciation method is valid for the Other tax book type.

Commercial

If this check box is selected, the depreciation method is valid for the commercial book type.

Statutory

If this check box is selected, the depreciation method is valid for the Statutory book type.

Calculatory

If this check box is selected, the depreciation method is valid for the calculatory book type.

Special

If this check box is selected, the depreciation method is valid for the special book type.

Allow Updates

If this check box is selected, you are able to update the methods, regardless of your security status.

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