To be able to calculate depreciation of fixed assets, select the Enable Depreciation of Fixed Assets option.

Depreciation Calculation

The depreciation expense and accumulated depreciation amounts can be calculated automatically by the Month-End Closing process or manually.

To automatically calculate depreciation on closing the month end, you need to select the Calculate Depreciation option on the Accounting > Service Tools > Month-End Closing form and click the Execute button. The service tool will include calculation of the depreciation in its processing.

If you need to manually calculate depreciation for specific fixed assets, create a new document on the form: Asset Management > Fixed Asset Documents> Fixed Asset Depreciations. You can click the Calculate button to populate the list with all the fixed assets with the Active status, then select the Manual Processing button and edit the list and adjust the depreciation amounts. Alternatively, you can select the Manual Processing check box and manually add the fixed assets of interest to the list. Then, the Month-End Closing service tool will not include the fixed assets listed with the Manual Processing option in its automatic processing.

The depreciation calculation for a particular fixed asset stops once the net book value of the fixed asset becomes equal to Salvage Value or 0 if no Salvage Value was specified.

Accounting Parameters for Depreciation Calculation

To enable depreciation calculation, you need to specify the following parameters for each depreciable fixed asset:

• Gross Cost: It is either Initial Cost which is the total of all costs and additional expenses incurred when purchasing the items, transporting them to the premises, assembling, and adjusting or the costs of construction.
• Salvage Value: The residual cost of the asset after usage.

Also, you must select one of the supported depreciation methods:

• Straight Line and specify the Useful Life of the asset in months.
• Units of Production and specify the Estimated Production Volume.

Note. For more details on the methods, refer to respective sections below.

Initially, these parameters are specified in the Fixed Asset Entry document, on posting of which the fixed asset is considered in the Active status or as accepted for accounting.

If your entity periodically performs reassessment of the fixed asset values for impairement or for gain, you can use the Changes of Fixed Asset Parameters document to register the results of reassessment. Here, you can enter the revised Gross Cost, Salvage Value, and Useful Life. The system will calculate the amount to be depreciated and the remaining months for depreciation. Once this document is posted, the new parameters will be used for the next depreciation calculation.

If you made capital improvements to a fixed asset, you can use the Capital Improvements to Fixed Assets document to register the resulting changes in the fixed asset parameters: revised Gross Cost that now includes capitalized costs of the improvements, extended useful life, revised Salvage Value.

Also, in this document if needed, you can calculate the current depreciation with "old" parameters (those before changes).

Using the Straight-Line Depreciation method

If you select the Straight-Line depreciation method, the depreciation expense for each month is calculated automatically based on the following values:

• Depreciable Cost = Gross Cost - Salvage Value
• Useful Life (Months).

Then, during each month-end closing process, the depreciation expense which is equal to Depreciable Cost /Useful Life will be posted.

The Accumulated Depreciation amount is a sum of depreciation amounts calculated in previous months.

The net book value is calculated as follows:

Net Book Value = Gross Cost - Accumulated Depreciation

The depreciation calculation stops once the fixed asset's Net Book Value becomes equal to Salvage Value.

Using the Units of Production Depreciation method

According to the Units of Production depreciation method, depreciation expenses are calculated proportionally to usage of the fixed asset which has a limited resource initially specified as Estimated Production Value. Generally, this method is used when usage differs significantly from month to month.

For this depreciation method, you need to specify the following parameters:

• Depreciable Cost = Gross Cost - Salvage Value
• UOM (unit of measure) in which usage will be measured
• Estimated Production Value which sets up the maximum usage recommended for the fixed asset
• Salvage Value which is the planned residual cost of the asset after usage

In any month in which the fixed asset was in use, you can register this month usage by creating a Fixed Asset Monthly Usage document. For details, refer to Fixed Asset Monthly Usage Documents.

The monthly depreciation expense is calculated as follows:

Month Usage * (Depreciable Cost/Estimated Production Value)

The Accumulated Depreciation amount is a sum of depreciation amounts calculated based on month usages in all previous months.

The net book value is calculated as follows:

Net Book Value = Gross Cost - Accumulated Depreciation

You can use the Fixed Assets Output report to view the fixed asset usage over time. For details, refer to Asset Management: Reports.