Depreciation Calculation for Table and Calculated Methods (Oracle Assets Help)


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Depreciation Calculation for Table and Calculated Methods

Use a life-based method to depreciate the asset over a fixed time using specified rates. There are two types of life-based methods:

Table: Oracle Assets gets the annual depreciation rate from a rate table.

Calculated: For straight-line depreciation, the depreciation program calculates the annual depreciation rate by dividing the life (in years) into one. Calculated methods spread the asset value evenly over the life.

You can accommodate new depreciation methods using rate tables instead of formulas. Add the appropriate rates to create a new method at any time.

Oracle Assets uses asset recoverable cost or net book value, salvage value, date placed in service, prorate convention, depreciation method, and life to calculate depreciation for life-based methods. Oracle Assets, using rates from a table or calculated rates, depreciates assets with life-based depreciation methods to be fully reserved at the end of a fixed lifetime.

Determining the Depreciation Rate

The rate tables contain annual rates for each fiscal year of asset life. The annual rate varies according to your reporting authority's depreciation regulations.

For example, some reporting authorities require that you prorate depreciation according to the number of months you hold an asset in its first fiscal year of life. In this case, your prorate calendar has 12 prorate periods and your rate table has 12 rates (one for each month of the year) per year of life. Other governments require that you prorate depreciation according to the number of days that you hold an asset in its first fiscal year of life. This means that there is a different depreciation rate for each day of the year. Thus, the number of rates in your rate table is a factor of 365. For example, the rate table would have 1825 rates for an asset with a 4 year life (365 x 5). This means that your prorate calendar must contain 365 prorate periods and correspondingly, your rate table must have 365 rates (one for each day of the year) for each year of life.

To determine the rates, calculate an annual depreciation rate for each fiscal year of an asset's life, for each period in your prorate calendar. This rate is the annual rate for the year for an asset where the prorate date falls into this prorate period. You do not need to calculate the depreciation rate for each depreciation period in each year of the asset life. You only enter annual depreciation rates in the Annual Rate field of the Rates window. The depreciation program uses this annual depreciation rate to determine the fraction of an asset cost or net book value to allocate to this fiscal year. It then uses the depreciation calendar and divide depreciation flag to spread the annual depreciation over the depreciation periods of the fiscal year.

Annual Depreciation Amount = Depreciation Rate x Depreciation Calculation Basis x Fraction of Year Held

Oracle Assets standard rate tables contain 12 rates per year of life. If your government requires daily rates, set up the appropriate rates using the Depreciation Methods window.

Depreciation in the first year of life

An asset prorate convention and depreciation method control when Oracle Assets starts to depreciate new assets. For assets using the straight-line method, depreciation starts in the first accounting period that the prorate date falls into. For assets using other life-based depreciation methods, depreciation starts in the first accounting period that either the date placed in service or the prorate date falls into, depending on whether Depreciate When Placed In Service is checked for the prorate convention. In both cases, Oracle Assets allocates the first year's depreciation to the depreciation periods remaining in the fiscal year.

Example

Suppose your fiscal year ends in May, you have monthly (12 period) depreciation and prorate calendars, and you want to allocate depreciation evenly to each period in the year. You place a $10,000 asset in service in the third period of your fiscal year (AUG-95) using the half-year prorate convention. Its life is 5 years and the depreciation method is 200% declining balance with a straight-line switch and a calculation basis rule of cost. Since the asset is using the half-year prorate convention, the prorate date is in December (the mid-point of your fiscal year) which corresponds to prorate period 7 in your prorate calendar shown in Table 1 - 12.

For assets that have a prorate period of 7, the rate table in Table 1 - 13 shows a 20% annual depreciation rate for the first year of life. If, however, you had used a prorate convention that resulted in a prorate period at the beginning of your fiscal year, Oracle Assets would have used the full rate for the year (40%).

For the asset in this example, Oracle Assets uses a rate of 20%, so the depreciation for fiscal 1996 is $2,000 (20% of $10,000).

You can specify whether to start taking depreciation in the period of the date placed in service or the prorate date using the Depreciate When Placed In Service flag for the prorate convention. If you elect to start depreciation in the period corresponding to the date placed in service, Oracle Assets starts to depreciate the asset in AUG-95, and the depreciation for each period is $200 ($2,000 divided by 10--the number of periods from August to May).

If you elect to start depreciation in the period corresponding to the prorate date, Oracle Assets does not start to depreciate the asset until DEC-95, and the depreciation for each period from DEC-95 to MAY-96 is $333.33 ($2,000 divided by 6--the number of periods from December to May).

Depreciation In The Middle Years Of Life

For the rest of the asset life, you use annual depreciation rates that correspond to the asset's prorate period in the rate table. Thus, in the second fiscal year of the asset's life (fiscal 1996), Oracle Assets uses a 32% annual depreciation rate (prorate period 7, year 2.). This yields a depreciation amount of $3,200. Oracle Assets divides this amount evenly across all the accounting periods in the year, so depreciation expense for each period is $266.67.

Similarly, the rates for 1995, 1996, and 1997 are 19.20%, 11.52%, and 11.52% respectively. Oracle Assets calculates annual depreciation for these years as $1,920, $1,152, and $1,152 and divides these amounts evenly across all the accounting periods in the appropriate fiscal years.

Depreciation In The Last Year Of Life