Accounting In Fixed Assets

Brief Overview of Fixed Asset Accounting

  1. Depreciation
  2. Additions and Capitalizations
  3. Adjustments
  4. Transfers and Reclassifications
  5. Revaluations
  6. Retirements and Reinstatements
  7. Tax Accumulated Depreciation Adjustments

A. Journal Entries for Depreciation

When you run depreciation, Oracle Assets creates journal entries for your accumulated depreciation accounts and your depreciation expense accounts.

Oracle Assets creates journal entries for your bonus reserve accounts and your bonus depreciation accounts, if any.

Oracle Assets creates separate journal entries for current period depreciation expense and for adjustments to depreciation expense for prior period transactions and changes to financial information.

Oracle Assets creates the following journal entries for a current period depreciation charge of $200 and a bonus charge of $50:

Account Description Debit Credit
Depreciation Expense 200.00
Bonus Expense 50.00
Accumulated Depreciation 200.00
Bonus Reserve 50.00

 

B. Journal Entries for Additions and Capitalizations

For manual additions, Oracle Assets gets the clearing account from the category.

For mass additions, the clearing account comes from your source system.

Example: The recoverable cost is $4,000 and the method is straight-line 4 years.

a. Current and Prior Period Addition

You purchase and place the asset into service in Year 1, Quarter 1.

Payables System Accounting Entries

Account Description Debit Credit
Asset Clearing 4,000.00
Accounts Payable Liability 4,000.00

a.1 Oracle Assets – CURRENT PERIOD ADDITION

Account Description Debit Credit
Asset Cost 4,000.00
Depreciation Expense 250.00
Asset Clearing 4,000.00
Accumulated Depreciation 250.00

a.2 Oracle Assets – PRIOR PERIOD ADDITION

You place an asset in service in Year 1, Quarter 1, but you do not enter it into Oracle Assets until Year 2, Quarter 2.

Your payables system creates the same journal entries to asset clearing and accounts payable liability as for a current period addition.

But your prior period addition entry will be as follows.

Account Description Debit Credit
Asset Cost 4,000.00
Depreciation Expense 250.00
Depreciation Expense

(Adjustment)

1,250.00
Asset Clearing 4,000.00
Accumulated Depreciation 1500.00

b. Merge Mass Additions

When you merge two mass additions, Oracle Assets adds the asset cost of the mass addition that you are merging to the asset account of the mass addition you are merging into.

Oracle Assets records the merge when you perform the transaction.

Oracle Assets does not change the asset clearing account journal entries it creates for each line, so each of the appropriate clearing accounts clears separately.

As an audit trail after the merge, the original cost of the invoice line remains on each line. When you create an asset from the merged line, the asset cost is the total merged cost.

Oracle Assets creates journal entries for the asset cost account for the mass addition into which the others were merged.

Oracle Assets creates journal entries for each asset clearing account. For example, you merge mass addition #1 into mass addition #2, so Oracle Assets creates the following journal entries:

Account Description Debit Credit
Asset Cost (mass addition #2 asset cost account) 4,000.00
Depreciation Expense 1,500.00
Asset Clearing (mass addition #1 accounts payable clearing account) 3,000.00
Asset Clearing (mass addition #2 accounts payable clearing account) 1,000.00
Accumulated Depreciation 1,500.00

c. Construction-In-Process (CIP) Addition

You add a CIP asset. (CIP assets do not depreciate)

Account Description Debit Credit
CIP Cost 4,000.00
CIP Clearing 4,000.00

d. Deleted Mass Additions

Oracle Assets creates no journal entries for deleted mass additions and does not clear the asset clearing accounts credited by accounts payable.

You clear the accounts by either reversing the invoice in your payables system, or creating manual journal entries in your general ledger.

e. Capitalization

When you capitalize CIP assets, Oracle Assets creates journal entries that transfer the cost from the CIP cost account to the asset cost account.

The clearing account has already been cleared when CIP addition entries been accounted.

Account Description Debit Credit
Asset Cost 4,000.00
Depreciation Expense 250.00
CIP Cost 4,000.00
Accumulated Depreciation 250.00

f. Asset Type Adjustments

If you change the asset type from capitalized to CIP, Oracle Assets creates journal entries to debit the CIP cost account and credit the asset clearing account. Oracle Assets does not create capitalization or reverse capitalization journal entries for CIP reverse transactions.

Oracle Assets – CHANGE TYPE FROM CAPITALIZED TO CIP (CURRENT PERIOD)

Account Description Debit Credit
CIP Cost 4,000.00
Asset Cost 4,000.00

C. Adjustments

C.1 Recoverable cost adjustments

If you change financial information after you have run depreciation, you must choose whether to expense or amortize the adjustment:

  1. Cost Adjustments to Assets Using a Life-Based Depreciation Method

Example: You place an asset in service in Year 1, Quarter 1. The recoverable cost is $4,000. The life of your asset is 4 years, and you are using straight-line depreciation. The bonus rate is 10%. In Year 1, Quarter 4, you receive an additional invoice for the asset and change the recoverable cost to $4,800.

Account Description Debit Credit
Asset Clearing 800.00
Accounts Payable Liability 800.00
Account Description Debit Credit
Asset Cost 800.00
Asset Clearing 800.00

a.1 Expensed

Account Description Debit Credit
Depreciation Expense 300.00
Bonus Expense 120.00
Depreciation Expense

(adjustment)

150.00
Bonus Expense (adjustment) 60.00
Accumulated Depreciation 450.00
Bonus Reserve 180.00

a.2 Amortized

Account Description Debit Credit
Depreciation Expense 311.53
Bonus Expense 124.62
Accumulated Depreciation 311.53
Bonus Reserve 124.62
  1. Cost Adjustments to Assets Using a Flat-Rate Depreciation Method

Example: You place an asset in service in Year 1, Quarter 1. The recoverable cost is $4,000. You are depreciating the asset cost at a 20% flat-rate. The bonus rate is 10%. In Year 1, Quarter 4, you change the recoverable cost to $4,800.

Account Description Debit Credit
Asset Clearing 800.00
Accounts Payable Liability 800.00
Account Description Debit Credit
Asset Cost 800.00
Asset Clearing 800.00

b.1 Expensed

Account Description Debit Credit
Depreciation Expense 240.00
Bonus Expense 96.00
Depreciation Expense

(adjustment)

120.00
Bonus Expense (adjustment) 48.00
Accumulated Depreciation 360.00
Bonus Reserve 144.00

b.2 Amortized

Account Description Debit Credit
Depreciation Expense 247.06
Bonus Expense 98.82
Accumulated Depreciation 247.06
Bonus Reserve 98.82
  1. Cost Adjustments to Assets Using a Diminishing Value Depreciation Method

Example: You place an asset in service in Year 1, Quarter 1. The recoverable cost is $4,000. You are using a 20% flat-rate that you apply to the beginning of year net book value. The bonus rate is 10%. In Year 2, Quarter 1, you change the recoverable cost to $4,800.

Account Description Debit Credit
Asset Clearing 800.00
Accounts Payable Liability 800.00
Account Description Debit Credit
Asset Cost 800.00
Asset Clearing 800.00

c.1 Expensed

Account Description Debit Credit
Depreciation Expense 168.00
Bonus Expense 84.00
Depreciation Expense

(adjustment)

160.00
Bonus Expense (adjustment) 80.00
Accumulated Depreciation 328.00
Bonus Reserve 164.00

c.2 Amortized

Account Description Debit Credit
Depreciation Expense 180.00
Bonus Expense 90.00
Accumulated Depreciation 180.00
Bonus Reserve 90.00
  1. Cost Adjustments to Assets Depreciating Under a Units of Production Method

Example: You purchase an oil well for $10,000. You expect to extract 10,000 barrels of oil from this well. Each quarter you extract 2,000 barrels of oil. In Year 1, Quarter 3, you realize that you entered the wrong asset cost. You adjust the recoverable cost to $15,000.

Account Description Debit Credit
Asset Clearing 5,000.00
Accounts Payable Liability 5,000.00
Account Description Debit Credit
Asset Cost 5,000.00
Asset Clearing 5,000.00

d.1 Expensed

Account Description Debit Credit
Depreciation Expense 3,000.00
Depreciation Expense

(adjustment)

2,000.00
Accumulated Depreciation 5,000.00

d.2 Amortized

Account Description Debit Credit
Depreciation Expense 3,666.67
Accumulated Depreciation 3,666.67
  1. Cost Adjustments to Capitalized and CIP Source Lines

When you transfer source lines you adjust the recoverable cost of an asset. Depreciation is calculated based on the asset type.

e.1 Transfer Source Lines Between Capitalized Assets

Oracle Assets creates the following journal entries for a source line transfer between capitalized assets.

Account Description Debit Credit
Asset Cost (from destination

asset category)

400.00
Asset Cost (from source asset

category)

400.00

Source Asset (Category)

Account Description Debit Credit
Accumulated Depreciation

(from source asset category)

70.00
Depreciation Expense 70.00

Destination Asset (Category)

Account Description Debit Credit
Depreciation Expense 55.00
Depreciation Expense

(adjustment)

70.00
Accumulated Depreciation

($70 from source asset category)

125.00

e.2 Transfer Source Lines From Capitalized Assets to CIP Assets

When you transfer source lines from capitalized to CIP assets, Oracle Assets must back out some of the depreciation from the capitalized asset, because CIP assets do not depreciate.

Oracle Assets creates the following journal entries for a source line transfer between capitalized assets and CIP assets:

Account Description Debit Credit
CIP Asset Cost (from destination

asset category)

400.00
Asset Cost (from source asset

category)

400.00

Source Asset (Category)

Account Description Debit Credit
Accumulated Depreciation

(from source asset category)

70.00
Depreciation Expense 70.00

e.3 Transfer Source Lines from CIP Assets to Capitalized Assets

When you transfer source lines from CIP to capitalized assets, Oracle Assets takes catchup depreciation as for any cost adjustment transaction.

Oracle Assets creates the following journal entries for a source line transfer between CIP assets and capitalized assets:

Account Description Debit Credit
Asset Cost (from destination

asset category)

400.00
CIP Asset Cost (from source asset

category)

400.00
Account Description Debit Credit
Depreciation Expense

(from source asset category)

125.00
Accumulated Depreciation

(from destination asset category)

125.00

e.4 Transfer Source Lines Between CIP Assets

Oracle Assets does not need to reverse depreciation expense when you transfer invoice lines between CIP assets Because CIP assets do not depreciate.

Oracle Assets creates the following journal entries for a source line transfer between CIP assets:

Account Description Debit Credit
CIP Asset Cost (from destination

asset category)

400.00
CIP Asset Cost (from source asset

category)

400.00
  1. Cost Adjustment by Adding a Mass Addition to an Existing Asset

If you add a mass addition to an asset, Oracle Assets creates a journal entry to the asset cost account of the existing asset.

Oracle Assets also credits the clearing account you assigned to the invoice distribution line in accounts payable to net it to zero.

If you want the existing asset to assume the asset category and description of the mass addition, Oracle Assets creates a journal entry for the new total asset cost to the asset cost account of the mass addition’s category. It also creates journal entries for the clearing account you assigned to the invoice line in accounts payable, and for the clearing or cost account of the original addition category.

Oracle Assets creates the following journal entries for a capitalized $2,000 mass addition added to a new, manually added $500 asset, where the asset uses the category of the mass addition:

Account Description Debit Credit
Asset Cost (from asset category of mass addition) 2,500.00
Asset Clearing (from original asset

category)

500.00
Asset Clearing (from original asset

category)

2,000.00

f.1 Amortized Adjustments Using a Retroactive Start Date

Example: You place an asset in service in Year 1, Quarter 1. The recoverable cost is $4,000. The life of your asset is four years, and you are using straight-line depreciation. In Year 2, Quarter 2, you receive an additional invoice for the asset and change the recoverable cost to $4,800. Since, the invoice date is in Year 1, Quarter 4, you want to amortize the change from that period.

Account Description Debit Credit
Asset Clearing 800.00
Accounts Payable Liability 800.00
Account Description Debit Credit
Asset Cost 800.00
Asset Clearing 800.00

Amortization

Account Description Debit Credit
Depreciation Expense 311.53
Depreciation Expense

(adjustment)

123.06
Accumulated Depreciation 434.59

C.2 Depreciation Method Adjustments

Example: You place an asset in service in Year 1, Quarter 1. The recoverable cost is $4,000, the life is 4 years, and you are using the 200 declining balance depreciation method. In Year 2, Quarter 1, you change the depreciation method to straight-line.

Expensed

Account Description Debit Credit
Depreciation Expense 250.00
Depreciation Expense

(adjustment)

1,000.00
Accumulated Depreciation 1000.00
Accumulated Depreciation 250.00

Amortization

Account Description Debit Credit
Depreciation Expense 166.67
Accumulated Depreciation 166.67

C.3 Life Adjustments

Example: You place an asset in service in Year 1, Quarter 1. The asset cost is $4,000, the life is 4 years, and you are using straight-line depreciation. In Year 2, Quarter 2, you change the asset life to 5 years.

Expensed

Account Description Debit Credit
Depreciation Expense 200.00
Accumulated Depreciation 200.00
Accumulated Depreciation(adjustment) 250.00
Depreciation Expense

(adjustment)

250.00

Amortization

Account Description Debit Credit
Depreciation Expense 183.33
Accumulated Depreciation 183.33

C.4 Rate Adjustments – Flat-Rate Depreciation Method

Example: You place an asset in service in Year 1, Quarter 1. The recoverable cost is $4,000 and you are depreciating the asset cost at a 20% flat-rate. In Year 2, Quarter 3, you change the flat-rate to 25%.

Expensed

Account Description Debit Credit
Depreciation Expense 250.00
Accumulated Depreciation 250.00
Accumulated Depreciation(adjustment) 300.00
Depreciation Expense

(adjustment)

300.00

Amortization

Account Description Debit Credit
Depreciation Expense 250.00
Accumulated Depreciation 250.00

C.5 Rate Adjustments – Diminishing Value Depreciation Method

Example: You place an asset in service in Year 1, Quarter 1. The recoverable cost is $4,000 and you are using a 20% flat-rate that you apply to the beginning of year net book value. In Year 2, Quarter 3, you change the flat-rate to 25%.

Expensed

Account Description Debit Credit
Depreciation Expense 187.50
Accumulated Depreciation 187.50
Accumulated Depreciation(adjustment) 255.00
Depreciation Expense

(adjustment)

255.00

Amortization

Account Description Debit Credit
Depreciation Expense 200.00
Accumulated Depreciation 200.00

C.6 Capacity Adjustments

Example: You purchase an oil well for $10,000. You expect to extract 10,000 barrels of oil from this well. Each quarter you extract 2,000 barrels of oil. In Year 1, Quarter 4 you discover that you entered the wrong capacity. You increase the production capacity to 50,000 barrels.

Expensed

Account Description Debit Credit
Depreciation Expense 400.00
Accumulated Depreciation 400.00
Accumulated Depreciation(adjustment) 4,800.00
Depreciation Expense

(adjustment)

4,800.00

Amortization

Account Description Debit Credit
Depreciation Expense 181.82
Accumulated Depreciation 181.82

Note: As per initial estimates total asset life was 5 quarters (10000 barrels / 2000) so $10,000 was to depreciate over 5 quarters. But as per new estimates asset life is 25 quarters (50,000 barrels/ 2000) so $10,000 is to depreciate over 25 quarters.

D. Journal Entries for Transfers and Reclassifications

Example: You place an asset in service in Year 1, Quarter 1. The recoverable cost is

$4,000, the life is 4 years, and you are using straight-line depreciation.

D.1 Current Period Transfer Between Cost Centers

In Year 2, Quarter 2, you transfer the asset from cost center 100 to cost center 200 in the current period.

Cost Center 100

Account Description Debit Credit
Accumulated Depreciation 1,250.00
Asset Cost 4,000.00

Cost Center 200

Account Description Debit Credit
Asset Cost 4,000.00
Depreciation Expense 250.00
Accumulated Depreciation 1,500.00

Note: Since it is transferred accounting entry will be across cost centers.

D.2 Prior Period Transfer Between Cost Centers

In Year 3, Quarter 4, you discover that an asset was transferred in Year 3, Quarter 3, from cost center 100 to cost center 200.

Cost Center 100

Period (YR.,Qtr.) Asset Cost Accum Deprn YTD Deprn Deprn Expense
Y3,Q1 4,000.00 2,250.00 250.00 250.00
Y3,Q2 4,000.00 2,500.00 500.00 250.00
Y3,Q3 4,000.00 2,750.00 750.00 250.00
Y3,Q4 0.00 0.00 500.00 -250.00*

Cost Center 200

Period (YR.,Qtr.) Asset Cost Accum Deprn YTD Deprn Deprn Expense
Y3,Q1 0.00 0.00 0.00 0.00
Y3,Q2 0.00 0.00 0.00 0.00
Y3,Q3 0.00 0.00 0.00 0.00
Y3,Q4 4,000.00 3,000.00 500.00 500.00*

Cost Center 100

Account Description Debit Credit
Accumulated Depreciation 2,750.00
Asset Cost 4,000.00
Depreciation Expense

(adjustment)

250.00

Cost Center 200

Account Description Debit Credit
Asset Cost 4,000.00
Depreciation Expense 250.00
Depreciation Expense

(adjustment)

250.00
Accumulated Depreciation 3,000.00

D.3 Current Period Transfer Between Balancing Segments

In Year 3, Quarter 4, you transfer the asset from the ABC Manufacturing Company to the XYZ Distribution Company.

ABC Manufacturing

Account Description Debit Credit
Accumulated Depreciation 2,750.00
Intercompany Receivables 1,250.00
Asset Cost 4,000.00

XYZ Distribution

Account Description Debit Credit
Asset Cost 4,000.00
Depreciation Expense 250.00
Accumulated Depreciation 3,000.00
Intercompany Payables 1,250.00

D.4 Prior Period Transfer Between Balancing Segments

In Year 3, Quarter 4, you discover that the asset was transferred in Year 3, Quarter 3, from the ABC Manufacturing Company to the XYZ Distribution Company.

ABC Manufacturing

Period (YR.,Qtr.) Asset Cost Accum Deprn YTD Deprn Deprn Expense
Y3,Q1 4,000.00 2,250.00 250.00 250.00
Y3,Q2 4,000.00 2,500.00 500.00 250.00
Y3,Q3 4,000.00 2,750.00 750.00 250.00
Y3,Q4 0.00 0.00 500.00 -250.00*

XYZ Distribution

Period (YR.,Qtr.) Asset Cost Accum Deprn YTD Deprn Deprn Expense
Y3,Q1 0.00 0.00 0.00 0.00
Y3,Q2 0.00 0.00 0.00 0.00
Y3,Q3 0.00 0.00 0.00 0.00
Y3,Q4 4,000.00 3,000.00 500.00 500.00*

ABC Manufacturing

Account Description Debit Credit
Accumulated Depreciation 2,750.00
Intercompany Receivables 1,500.00
Asset Cost 4,000.00
Depreciation Expense

(adjustment)

250.00

XYZ Distribution

Account Description Debit Credit
Asset Cost 4,000.00
Depreciation Expense 250.00
Depreciation Expense

(adjustment)

250.00
Accumulated Depreciation 3,000.00
Intercompany Payables 1,250.00

D.5 Unit Adjustment

A unit adjustment is similar to a transfer, since you must update assignment information when you change the number of units for an asset. For example, you place the same $4,000 asset in service with two units assigned to cost center 100. In Year 2, Quarter 3, you realize the asset actually has four units, two of which belong to cost center 200.

Cost Center 100

Account Description Debit Credit
Accumulated Depreciation 750.00
Asset Cost 2,000.00

Cost Center 200

Account Description Debit Credit
Asset Cost 2,000.00
Accumulated Depreciation 750.00

D.6 Reclassification

Example: You reclassify an asset from office equipment to computers in Year 1, Quarter 3. The asset cost is $4,000, the life is 4 years, and you are using straight-line depreciation.

When you reclassify an asset in a period after the period you entered it, Oracle Assets creates journal entries to transfer the cost and accumulated depreciation to the asset and accumulated depreciation accounts of the new asset category. This occurs when you create journal entries for your general ledger.

Oracle Assets also changes the depreciation expense account to the default depreciation expense account for the new category, but does not adjust for prior period expense.

Office Equipment

Period (YR.,Qtr.) Asset Cost Accum Deprn YTD Deprn Deprn Expense
Y1,Q1 4,000.00 250.00 250.00 250.00
Y1,Q2 4,000.00 500.00 500.00 250.00
Y1,Q3 0.00 0.00 500.00 0.00*
Y1,Q4 0.00 0.00 500.00 0.00

Computers

Period (YR.,Qtr.) Asset Cost Accum Deprn YTD Deprn Deprn Expense
Y1,Q1 0.00 0.00 0.00 0.00
Y1,Q2 0.00 0.00 0.00 0.00
Y1,Q3 4,000.00 750.00 250.00 250.00*
Y1,Q4 4,000.00 1,000.00 500.00 250.00

Office Equipment

Account Description Debit Credit
Accumulated Depreciation 500.00
Asset Cost 4,000.00

Computers

Account Description Debit Credit
Asset Cost 4,000.00
Depreciation Expense 250.00
Accumulated Depreciation 750.00

Note: The new Depreciation Expense account will only inherit the natural account from the new category. The other segment values will remain the same.

E. Journal Entries for Retirements and Reinstatements

When you retire an asset and create journal entries for that period, Oracle Assets creates journal entries for your general ledger for each component of the gain/loss amount.

Oracle Assets creates journal entries for either the gain or the loss accounts for the following components: proceeds of sale, cost of removal, net book value retired, and revaluation reserve retired. Oracle Assets also creates journal entries to clear the proceeds of sale and cost of removal.

Oracle Assets creates journal entries for the retirement accounts you set up in the Book Controls window. If you enter distinct gain and loss accounts for each component of the gain/loss amount, Oracle Assets creates multiple journal entries for these accounts. You can enter different sets of retirement accounts for retirements that result in a gain and retirements that result in a loss.

Depreciation for Retirements

The retirement convention, date retired, and depreciation method control how much depreciation Oracle Assets takes when you retire an asset.

Oracle Assets reverses the year-to-date depreciation if the asset’s depreciation method does not depreciate it in the year of retirement. In this case, when you perform a full retirement, Oracle Assets reverses the year-to-date depreciation of the asset, and computes the gain or loss using the resulting net book value. For partial retirements, Oracle Assets reverses the appropriate fraction of the year-to-date depreciation and computes the gain or loss using the appropriate fraction of the resulting net book value.

If the depreciation method takes depreciation in the year of retirement, Oracle Assets uses your retirement convention to determine whether the asset is eligible for additional depreciation in that year or whether some of that year’s depreciation must be reversed.

When you perform a partial retirement, Oracle Assets depreciates the portion of the asset you did not retire based on the method you use. If your depreciation method multiplies a flat-rate by the cost, Oracle Assets depreciates the asset’s cost remaining after a partial retirement. For assets that use a diminishing value method, Oracle Assets depreciates the remaining fraction of the asset’s net book value as of the beginning of the fiscal year.

Depreciation for Reinstatements

The retirement convention, date retired, and period in which you reinstate an asset control how much depreciation Oracle Assets calculates when you reinstate an asset.

When you reinstate a retired asset, Oracle Assets usually calculates some additional depreciation expense in the period in which you perform the reinstatement, unless you perform it in the same period that you retired the asset. This additional depreciation is the depreciation that would have been taken if you had not retired the asset.

Sometimes, however, a reinstatement results in a reversal of depreciation. This occurs if the retirement convention caused some additional depreciation when you retired the asset, and then you reinstate the asset before the retirement prorates date. Then Oracle Assets reverses the extra depreciation that it took at retirement, and waits until the appropriate accounting periods to take it.

E.1 Current Period Retirements

Example: You place an asset in service in Year 1, Quarter 1. The asset cost is $4,000, the life is 4 years, and you are using straight-line depreciation. In Year 3, Quarter 3, you sell the asset for $2,000. The cost to remove the asset is $500. The asset uses a retirement convention and depreciation method which takes depreciation in the period of retirement. You retire revaluation reserve in this book.

Account Description Debit Credit
Accounts Receivable 2000.00
Proceeds of Sales Clearing 2,000.00
Account Description Debit Credit
Cost of Removal Clearing 500.00
Accounts Payable 500.00
Account Description Debit Credit
Accumulated Depreciation 2,500.00
Proceeds of Sale Clearing 2,000.00
Cost of Removal Gain 500.00
Revaluation Reserve 600.00
Net Book Value Retired Gain 1,500.00
Asset Cost 4,000.00
Proceeds of Sale Gain 2,000.00
Cost of Removal Clearing 500.00
Revaluation Reserve Retired 600.00

If you enter the same account for each gain and loss account, Oracle Assets creates a single journal entry for the net gain or loss as shown in the following table:

Book Controls window:

Accounts Gain Loss
Proceeds of Sale 1000 1000
Cost of Removal 1000 1000
Net Book Value Retired 1000 1000
Revaluation Reserve Retired 1000 1000
Account Description Debit Credit
Accumulated Depreciation 2,500.00
Proceeds of Sale Clearing 2,000.00
Revaluation Reserve 600.00
Asset Cost 4,000.00
Cost of Removal Clearing 500.00
Gain/Loss 600.00

E.2 Prior Period Retirement

Example: You place an asset in service in Year 1, Quarter 1. The asset cost is $4,000, the life is 4 years, and you are using straight-line depreciation. In Year 3, Quarter 3, you discover that the asset was sold in Year 3, Quarter 1, for $2,000. The removal cost was $500. The asset uses a retirement convention and depreciation method which allows you to take depreciation in the period of retirement.

Account Description Debit Credit
Accounts Receivable 2000.00
Proceeds of Sales Clearing 2,000.00
Account Description Debit Credit
Cost of Removal Clearing 500.00
Accounts Payable 500.00
Account Description Debit Credit
Accumulated Depreciation 2,500.00
Proceeds of Sale Clearing 2,000.00
Cost of Removal Loss 500.00
Net Book Value Retired Loss 1,750.00
Asset Cost 4,000.00
Proceeds of Sale Loss 2,000.00
Cost of Removal Clearing 500.00
Depreciation Expense 250.00

E.3 Current Period Reinstatement

Example: You discover that you retired the wrong asset. Oracle Assets creates journal entries for the reinstatement to debit asset cost, credit accumulated depreciation, and reverse the gain or loss you recognized for the retirement. Oracle Assets reverses the journal entries for proceeds of sale, cost of removal, net book value retired, and revaluation reserve retired. Oracle Assets also reverses the journal entries you made to clear the proceeds of sale and cost of removal.

Oracle Assets also creates journal entries to recover the depreciation not charged to the asset and for the current period depreciation expense.

Account Description Debit Credit
Asset Cost 4,000.00
Cost of Removal Clearing 500.00
Gain/Loss 600.00
Depreciation Expense 250.00
Accumulated Depreciation 2,750.00
Proceeds of Sale Clearing 2,000.00
Revaluation Reserve 600.00

E.4 Prior Period Reinstatement

Example: You place an asset in service in Year 1, Quarter 1. The asset cost is $4,000, the life is 4 years, and you are using straight-line depreciation. In Year 2, Quarter 1, you retire the asset. In Year 2, Quarter 4, you realize that you retired the wrong asset so you reinstate it.

Account Description Debit Credit
Asset Cost 4,000.00
Cost of Removal Clearing 500.00
Proceeds of Sale Loss 2,000.00
Depreciation Expense 250.00
Depreciation Expense

(adjustment)

500.00
Net Book Value Retired Loss 2,750.00
Cost of Removal Loss 500.00
Proceeds of Sale Clearing 2,000.00
Accumulated Depreciation 2,000.00

F. Journal Entries for Revaluations

The following examples illustrate the effect on your assets and your accounts when you specify different revaluation rules.

F.1 Revalue Accumulated Depreciation

Example 1: You place an asset in service in Year 1, Quarter 1. The asset cost is $10,000, the life is 5 years, and you are using straight-line depreciation.

In Year 2, Quarter 1 you revalue the asset using a revaluation rate of 5%. Then in Year 4,

Quarter 1 you revalue the asset again using a revaluation rate of -10%.

Revaluation Rules:

• Revalue Accumulated Depreciation = Yes

• Amortize Revaluation Reserve = No

• Retire Revaluation Reserve = No

Oracle Assets bases the new depreciation expense on the revalued remaining net book value.

In Year 5, Quarter 4, at the end of the asset’s life, you retire the asset with no proceeds of sale or cost of removal.

The effects of the revaluations are illustrated in the following table:

Period (YR.,Qtr.) Asset Cost Deprn. Expense Accum. Deprn. Reval. Reserve
Y1,Q1 10,000.00 500.00 500.00 0.00
Y1,Q2 10,000.00 500.00 1,000.00 0.00
Y1,Q3 10,000.00 500.00 1,500.00 0.00
Y1,Q4 10,000.00 500.00 2,000.00 0.00
Reval 1 5% 10,500.00 0.00 *2,100.00 **400.00
Y2,Q1 10,500.00 525.00 2625.00 400.00
Y2,Q2 10,500.00 525.00 3150.00 400.00
Y2,Q3 10,500.00 525.00 3675.00 400.00
Y2,Q4 10,500.00 525.00 4200.00 400.00
Y3,Q1 10,500.00 525.00 4725.00 400.00
Y3,Q2 10,500.00 525.00 5250.00 400.00
Y3,Q3 10,500.00 525.00 5775.00 400.00
Y3,Q4 10,500.00 525.00 6300.00 400.00
Reval 2 10% 9,450.00 0.00 *5670.00 **-20.00
Y1,Q1 9,450.00 472.50 6142.50 -20.00
Y1,Q2 9,450.00 472.50 6615.00 -20.00
Y1,Q3 9,450.00 472.50 7087.50 -20.00
Y1,Q4 9,450.00 472.50 7560.00 -20.00
Y1,Q1 9,450.00 472.50 8032.50 -20.00
Y1,Q2 9,450.00 472.50 8505.00 -20.00
Y1,Q3 9,450.00 472.50 8977.50 -20.00
Y1,Q4 9,450.00 472.50 9450.00 -20.00
Retire 0.00 0.00 0.00 -20.00

REVALUATION 1

Year 2, Quarter 1, 5% revaluation

—————————————————————————————————————-

*Accumulated Depreciation = Existing Accumulated Depreciation + [Existing

Accumulated Depreciation x (Revaluation Rate / 100)]

—————————————————————————————————————-

2,000 + [2,000 X (5/100)] = 2,100

—————————————————————————————————————-

—————————————————————————————————————-

**Revaluation Reserve = Existing Revaluation Reserve + Change in Net Book Value

—————————————————————————————————————-

2,000 + [2,000 X (5/100)] = 2,100

—————————————————————————————————————-

Account Description Debit Credit
Asset Cost 500.00
Revaluation Reserve 400.00
Accumulated Depreciation 100.00

REVALUATION 2

Year 4, Quarter 1, -10% revaluations

Account Description Debit Credit
Asset Cost 1,050.00
Revaluation Reserve 630.00
Accumulated Depreciation 420.00

Retirement in Year 5, Quarter 4:

Account Description Debit Credit
Accumulated Depreciation 9,450.00
Asset Cost 9,450.00

For following examples and other examples please refer to Oracle Fixed Asset User guide and support doc id 2018027.1

Accumulated Depreciation Not Revalued

Amortizing Revaluation Reserve

Revaluation of a Fully Reserved Asset

Revaluation with Life Extension Ceiling

Revaluation with a Revaluation Ceiling

G. Journal Entries for Tax Accumulated Depreciation Adjustments

Example: You place an asset in service in Year 1, Quarter 1. The asset cost is $4,000, the life is 4 years, and you are using straight-line depreciation. In Year 4, Quarter 1, your tax authority requests that you change the depreciation taken in Year 2 from $1000 to $800.

Oracle Assets creates the following journal entries for the reserve adjustment:

Account Description Debit Credit
Accumulated Depreciation 200.00
Depreciation Adjustment 200.00

Reference: Oracle Fixed Asset User Guide

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