Examples of Transfer to Derogatory Depreciation
This document presents examples illustrating these three scenarios for using a derogatory depreciation of fixed assets:
- Transfer from declining balance depreciation
- Transfer from linear depreciation
- Change of lifetime for existing derogatory depreciation.
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
- The fixed asset has one depreciation type for declining balance depreciation with ID 20.
- Acquisition cost: 1,200,000
- Depreciation share: 31.25%
- Lifetime: 96 periods
- Auto-change depreciation method: 2
- New lifetime to be applied at the end of the third year: 60 periods (5 years)
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
- First, create a linear depreciation type (ID 11) to use as the associated depreciation type.
- Next, create the derogatory depreciation type (ID 91), in this case one for declining balance depreciation and with the same setup as ID 20, and connect it to the depreciation type with ID 11.
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
- The fixed asset has one depreciation type for linear depreciation with ID 10.
- Acquisition cost: 1,200,000
- Current lifetime: 96 periods (8 years)
-
New lifetime to be applied at the end of the third year: 60 periods (5 years).
Depreciation Plan (Linear Depreciation, 96 Periods)
As seen in the table below, the total depreciated amount at the end of the third year, when the transfer to derogatory depreciation will be made, is 450,000.00.
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
Preparation for Transfer
- First, create a linear depreciation type (ID 11) to use as the associated depreciation type. You can either enter the new lifetime for the asset for this depreciation type or when performing the transfer in (FAS700).
- Next, create a derogatory depreciation type (ID 91), in this case a linear with the same setup as ID 10, and connect it to the depreciation type with ID 11.
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
- The fixed asset has two depreciation types: one for linear depreciation (ID 10) and the derogatory depreciation type that can be either declining or linear (ID 90).
- Acquisition cost: 1,200,000
- Depreciation share for ID 90: 31.25%
- Lifetime for both depreciation types: 96 periods
- Auto-change depreciation method for ID 90: 2
- New lifetime to be applied at the end of the third year: 60 periods (5 years).
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
- First, create a linear depreciation type (ID 11) that will be used as the associated depreciation type. You can either enter the new lifetime for the asset for this depreciation type or when performing the transfer in (FAS700).
- Next, create a derogatory depreciation type (ID 91) and connect it to the associated depreciation type with ID 11.
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.