Depreciating fixed assets

Depreciation books and methods

Each fixed asset has a depreciation book, and this is where you choose the depreciation method. Learn describes, among others, straight-line, declining-balance and manual depreciation. You can have several books, for example one for the accounts and one for tax, with different methods.

The calculation uses a standard year of 360 days and a standard month of 30 days. This means you can calculate depreciation for any period, including monthly or quarterly.

When you create a new fixed asset, the depreciation book must be filled in with method, starting date and useful life before the job can calculate anything. If the information is missing, the asset gets no depreciation.

Calculate depreciation

The Calculate Depreciation batch job can be run every month or as needed. It skips assets that are sold, blocked or inactive, and assets with the manual method. Step by step:

Read through the journal before you post. Check especially assets bought or sold in the period, and assets with manual changes. Blocked assets are deliberately skipped.

• Search for Calculate Depreciation, and fill in the fields on the request page.
• The job creates lines in the Fixed Asset G/L Journal.
• Open the journal, check the number of depreciation days on the lines, and choose Post.

FA posting groups

The accounts are controlled by the FA Posting Groups, where you specify accounts for depreciation expense, accumulated depreciation, acquisition cost, gains and losses. If several departments use an asset, you can distribute the depreciation using a user-defined allocation key or choose a dimension on the journal line.

The accounts are not something you choose per run. Changes to the FA posting groups apply to all assets that use the group, so change them with care and review the postings afterwards.

Ending book value

On the FA Depreciation Books page you can specify an ending book value that the asset should have when it is fully depreciated. If the book value is zero after the last depreciation, the last depreciation is reduced by the amount. If the value is greater than zero because of rounding or residual value, the field is ignored. Learn explains the details in the section on residual value.

If you need to reconcile the fixed asset register with the general ledger, compare the book value in the fixed asset reports with the balance on the fixed asset and depreciation accounts. Differences are often caused by direct postings on the general ledger accounts.

Correct errors

If wrong depreciation has been posted, you can cancel it with the Cancel FA Ledger Entries batch job and then run Calculate Depreciation again. The corrections are posted as error entries. For general price changes there is the Index Fixed Assets batch job, which recalculates depreciation amounts.

You can also post depreciation manually in the Fixed Asset G/L Journal by choosing Depreciation as the FA posting type and using Insert FA Bal. Account to get the balancing account.

If depreciation has been posted on the wrong asset, cancel the entry instead of making a reversing entry by hand. That keeps the trail in the fixed asset ledger entries.

Rules and rhythm

Which methods and rates you may use for accounting and tax follows your local rules. The same applies to limits for low-value assets. Confirm your choices with your auditor, and then set it up in the depreciation books. Put the run into the month-end close, so depreciation is posted before you close the period.

Assets that are scrapped or sold are disposed of with the fixed asset journal, so that gain or loss is posted according to the FA posting group. Do this before the next depreciation run.