Enhanced Depreciation - Reduction in Depreciation for a Given Year
In some circumstances you might need to reduce the standard depreciation percentage of an asset for a given year. When a reduction depreciation is applied to an asset for a certain year, there can be no advanced depreciation for the asset in that year. Standard depreciation is posted during all the periods of the year (normally 12), and then in the last period the reduction depreciation is posted as a separate transaction, with Journal Type SYSTM and Journal Source DPRED, to the normal depreciation Balance Sheet and Profit and Loss accounts. The asset indicator on the balance sheet account journal line is Depreciation (D).
Example
Italian law allows for the reduction of the standard depreciation percentage in any given year. This is intended for an asset that is not 100% utilized in active production for the year. In this case the standard depreciation amount is reduced by an appropriate percentage.
- 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 advanced depreciation for the first 3 years
- In 2007, a 20% reduction is applied, so the ordinary depreciation amount for 2007 is 80% * EUR 220 = EUR 176
- In 2008, a new reduction is not required, so both the standard depreciation and the advanced depreciation are calculated.
Year | 2006 | 2007 | 2008 | 2009 |
Ordinary Depreciation, Euros | 110 | 176 | 220 | 164 |
Anticipated Depreciation, Euros | 110 | 0 | 220 | 0 |
Total Yearly Depreciation, Euros | 220 | 176 | 440 | 164 |
Remaining Asset Value, Euros | 780 | 604 | 164 | 0 |
In Asset Records (FAS), on each currency Value tab, the relevant % Current Year Reduction option determines the percentage reduction in standard depreciation rate for the current year. You can either set this for individual assets, or run Asset Reduction Depreciation Selection (FDR) to specify the percentage on a number of assets, grouped by asset code, or analysis code, or both. On each asset with a current year reduction percentage applied, the relevant Apply Current Year check box is unchecked so that advanced depreciation is not applied to that asset for the year.
In the last period of the year, after specifying the reduction percentages on assets, run the Asset Reduction Depreciation Calculation (FAR) function. You can select whether or not to post the calculation, and in either case a report is generated with the results of the calculation.