1. Building Blocks of the M3 Depreciation Solution

M3 supports three main methods for depreciation: linear, declining balance, and user defined, including variants of these: derogatory, auto-change 1 and 2, and double declining. All methods are based on the following entities or building blocks in M3:

Entity Where Defined Comments
Number of periods per period type 'Company. Connect Division' (MNS100). The maximum number of periods allowed in M3 is 53.
Fiscal year 'System Calendar. Open Period' (CRS910) The fiscal year can be shorter or longer than 12 months. It can have a different start date and end date than the calendar year. A period of a fiscal year can be as short as a week, a group of weeks, months, or any other division.
Depreciation type

'FA Depreciation Type. Open' (FAS050).

You connect depreciation types to assets by selecting one or both of the following alternatives: 1) The 'Standard depreciation types' option in 'FA Type. Open' (FAS075/B). This displays 'FA Type. Connect Depreciation Types' (FAS077). 2) The 'Depreciation types' option in 'Fixed Asset. Open' (FAS001/B). This displays 'Fixed Asset. Connect Depreciation Types' (FAS002).

M3 calculates a depreciation plan for the entire asset lifetime for each depreciation type that is selected for the fixed asset.

The depreciation type determines, among other things, the following:

  1. How often depreciation is calculated: annually, semiannually, quarterly, or per period.

  2. The type of period to use to start the depreciation: acquisition period or date, manufacturing period or date, activation period or date, or period or date for building permit date. If the depreciation is based on daily calculation according to the linear depreciation method, depreciation starts from the actual date. Otherwise, depreciation starts from the period.

  3. 3. Whether depreciation is made for external purposes in financial accounting or for internal cost accounting.
Value types for acquisition cost and reacquisition cost You define the value types to use in 'FA Value Type. Open' (FAS060). You connect standard value types to fixed asset types in 'Standard Value Type. Open per FA Type' (FAS078), which is accessed from (FAS075). You can also connect or disconnect value types for a specific asset in 'Fixed Asset. Connect Value Types' (FAS003), which is accessed from (FAS001).

The depreciation is based on either the acquisition cost or the reacquisition cost. A depreciation plan can only be calculated if the value type for one of these costs is populated with a value. The acquisition value is the amount the company originally paid for the asset. The reacquisition cost is the amount the company would have to pay to buy a new identical asset. This value should be used if the asset value fluctuates, and especially if it goes up.

Example: If the market price for a machine increases, depreciation on the machine's reacquisition cost better reflects what it really costs to use the old machine, since it will be more expensive to replace in the future.
Depreciation start date 'FA Depreciation Type. Open' (FAS050) Depreciation is started from a specific date and entered for each depreciation method. The start date can be one of the following: Purchase date, manufacturing date, activation date, or the date of the building permit.