Depreciation in Fixed Assets

 

Depreciation in Fixed Assets

1. Fixed Asset Configuration that Impact Depreciation Calculation

Depreciation cannot be explained without brief explanation of following terms Depreciation Calendar, Prorate Calendar, Prorate Convention. So for brief explanation of these terms please refer my other blogs. I will try to cover here remaining items which are related to depreciation

1. Depreciate when placed in service flag

Designates whether to start taking depreciation in the accounting period that corresponds to the date placed in service or to start taking depreciation in the accounting period that corresponds to the prorate date.

Navigation:

Setup → Asset System → Prorate Conventions

2. Depreciation Methods

b.1) A life based method or calculated method will spread the depreciation out over the fixed life of the asset. It uses the asset’s cost or NBV, salvage value, date placed in service, prorate convention, depreciation method and life to calculate depreciation.

If the asset uses a flat rate method, it will calculate depreciation based on a fixed rate using the cost or the NBV. This basic rate plus the adjusted rate make up the adjusted rate, which is used as the fixed rate.

b.2) Table based methods use the prorate period and the rate tables.

b.3) Units of Production depreciation method bases depreciation only on how much you use that asset. It divides the production for the period by the capacity and multiplies that value by the recoverable cost to calculate the expense for the period.

When defining your methods, you specify your calculation basis. For cost based depreciation methods, this is cost-salvage value. For NBV based depreciation methods, this is cost-accumulated depreciation (reserve).

Navigation:

Setup → Depreciation →Methods

3. Depreciate Flag

Designates whether or not to depreciate an asset.

Navigation:

         Asset workbench → Find/Select Asset → Books

4. Date placed in service

The calendar date when you start using an asset.

Navigation:

Asset workbench → Find/Select Asset → Books

5. Divide Depreciation Flag

The method for dividing the annual depreciation amount over the periods in you fiscal year for this book. The value of Evenly divides depreciation evenly for each period and the value By Days divides it proportionally based on the number of days in each period.

Navigation:

Setup → Asset System → Book Controls

The depreciation program uses the depreciation rate, your depreciable basis (calculation basis) and the prorate calendar to calculate the current year depreciation. In tax books, this could be limited by a cost ceiling. Then the current period’s depreciation is calculated. In tax books, this could be limited by a cost ceiling or an expense ceiling.

• For the first period of the asset’s life, it will use the depreciation calendar, prorate calendar, depreciation start date and current year depreciation.
• For the last period of the asset’s life, it will use recoverable cost – accumulated depreciation.
• For the last period of the fiscal year, it will use the current year depreciation-year to date depreciation.
• For other periods, it will use the depreciation calendar and the current year depreciation.

If an asset has a depreciation ceiling associated with it, the calculated depreciation amount could be limited by the depreciation-ceiling amount.

It then allocates that periodic expense to the assignments of the asset. This is determined by the fraction of the asset unit that is assigned to each depreciation expense account. Accumulated depreciation (reserve) and year to date (YTD) depreciation is also updated.

2. Submitting Depreciation

At the end of your accounting period, you will submit the depreciation program for each of your books.

Navigation: Depreciation → Run

Enter the book name and the current open period will default in.

This submits a request set, which includes the following programs:

1. Calculate Gains and Losses – FARET – Calculates the gains and losses for pending retirements and reinstatements and performs catch up depreciation for retirements and reinstatements.
2. Depreciation – FADEPR – Calculates depreciation expense and adjustments for the period and closes the period. Accumulated depreciation and year to date depreciation is updated. If depreciation is being run for the last period of the fiscal year, it will check to see if the next fiscal year, prorate and depreciation calendars are defined and if not, it will define them for you.
3. Journal Entry Reserve Ledger report – FAS400 – Shows how much depreciation expense was charged to a depreciation expense account for any accounting period.

If depreciation encounters an error, the program will fail at that point and rollback any depreciation that was committed.

3. What happens Behind the Scenes

The two major functions in the FADEPR program are FADCJE, the cost journal entries program and FADDEP, the depreciation module.

1. FADCJE is called at the beginning of the depreciation program. It processes all newly added assets and clears their cost in the FA_ADJUSTMENTS table. After it completes, FADDEP is called.
2. FADDEP calculates depreciation expense for each asset and allocates it to each of the asset’s distributions.

Tables that are updated when running depreciation:

3. FA_ADJUSTMENTS – for each distribution line, there will be cost and cost clearing rows for the addition, and a depreciation expense row for any catch up depreciation.
4. FA_DEPRN_SUMMARY – A ‘DEPRN’ (D) row is inserted to reflect the current month’s depreciation expense, year to date depreciation expense, and total depreciation reserve (accumulated depreciation)
5. FA_DEPRN_DETAIL – A ‘D’ row for each distribution line is inserted FA_DEPRN_PERIODS – Updating the current period’s row with a PERIOD_CLOSE_DATE closes the current period, and a new row is inserted for the next period
6. FA_BOOK_CONTROLS – Updates deprn_status, last_period_counter, last_deprn_run_date, deprn_request_id, deprn_status, current_fiscal_year

4. Unplanned Depreciation

Unplanned depreciation is a feature in Fixed Assets to handle unusual accounting situations in which you need to adjust Net Book Value and reserve for an asset without affecting cost. You can enter unplanned depreciation by asset and by book for any current period during the life of an asset in either your tax or your Corporate book. Unplanned depreciation updates the year to date, life to date and net book value of an asset.

Navigation:

Asset workbench→Find/select asset→Books→Enter book and tab down→ click on unplanned depreciation button

5. Depreciation Projection

Oracle Assets provides you with a depreciation projection program and report that will estimate actual depreciation expense. You can project depreciation for any number of periods across any of your depreciation books. Keep in mind, whatever period you are projecting for, must be defined in your calendar.

Navigation:

Depreciation→Projections

         

6. What-If Analysis

What-If depreciation analysis allows you to forecast depreciation for a group of assets in different scenarios without changing your data. You can enter your different combinations of parameters in Oracle Assets or in Report Exchange (ADI).

Navigation:

Depreciation→What-If Analysis

         

Reference : Doc ID 111095.1