Enhanced Depreciation - Advanced Depreciation
Advanced Depreciation, also sometimes called 'anticipated depreciation', is the multiplication of the ordinary depreciation amount by a factor during selected years of the asset's life. Both the multiplication factor and the advanced depreciation term of years are defined on each asset record using Asset Records.
For example, Italian law allows the doubling of the ordinary depreciation amount during the first three years of the asset life (or one year if the asset is purchased 'used'), using advanced depreciation. This can be combined with the percentage reduction in the first year, as described above.
Advanced depreciation must be managed as a different type of transaction to ordinary depreciation, and the two amounts are summed to give the total depreciation. As in normal fixed asset management, the total accumulated depreciation can never be greater than the gross asset value. Thus in the last year of depreciation, if the asset's residual (net) value is less than the total depreciation amount for the year, the ordinary depreciation is calculated first, and then the advanced depreciation only consists of the remaining value. Moreover, if the net value is less than the ordinary depreciation amount, then only the ordinary depreciation is posted and there is no advanced depreciation in the last year.
Example
Under Italian Law, advanced depreciation must be of the same value as ordinary depreciation per year for each asset, that is, the total depreciation is double the ordinary depreciation (except for the final year when it may be less, as described above). In Asset Records you can specify the factor of advanced versus ordinary depreciation, so for Italy this should be set to 1.
- Fixed asset bought on 01/01/06
- Fixed asset gross value: EUR 1000
- Standard depreciation rate: 22%
- 50% of the depreciation value for the first year
- In this example, the asset is allowed double depreciation for the first 3 years, summing ordinary depreciation and advanced depreciation.
| Year | 2006 | 2007 | 2008 |
| Ordinary Depreciation, Euros | 110 | 220 | 220 |
| Advanced Depreciation, Euros | 110 | 220 | 120 |
| Total Yearly Depreciation, Euros | 220 | 440 | 340 |
| Remaining Asset Value, Euros | 780 | 340 | 0 |
In order to use advanced depreciation in SunSystems, you must set the Apply Advanced Depreciation option on the Ledger Setup. In Asset Records, on each individual asset record you must identify the advanced depreciation balance sheet and profit and loss accounts (which are separate from the ordinary depreciation accounts), the term in number of years (Term of Years), the start year (Apply From), and the Factor as described above.
You can use Asset Advanced Depreciation Calculation (FAA) to calculate advanced depreciation at year end, after all ordinary depreciation methods have been posted. The advanced depreciation can only be posted in the last period of the year. By setting the Post Transactions option to No on the Calculate Advanced Depreciation form, you can run advanced depreciation calculations without posting to the ledger. You can view the calculation results report, and try different scenarios to help you decide whether to include a group of assets or not for the definitive calculation. When you post the definitive advanced depreciation calculation, a journal is posted with Journal Type SYSTM and Journal Source DPANT, to the advanced depreciation Balance Sheet and Profit and Loss accounts. The asset indicator on the balance sheet account journal line is Depreciation (D).
In any given year, you can run the advanced depreciation calculation as many times as you wish without posting, however, you can only post the result once per year for each asset, and it must be within the last period of the year.
Asset Disposal and Advanced Depreciation
For asset disposal during the useful life of a fixed asset, the net value of the asset is calculated as follows:
net value = gross value - ordinary depreciation - advanced depreciation
and for completeness:
gross value = acquisition price + revaluation - debasement.
The net value of the asset must be compared with the sale price obtained (0 if the asset is written off completely and not sold). The difference between the two values constitutes a capital loss or a capital gain, for example, if the net value is greater than the sale price then the difference is a capital loss.
If the asset is disposed of on a date part way through the year, the net value assumes the total accumulated depreciation to that date. Since advanced depreciation is only calculated at year end, there is no advanced depreciation amount calculated for that year for the asset being disposed.