This appendix contains the following topics:
Section A.5, "Methods 03, 04, and 05, Declining Balance with Cross-Over"
Section A.6, "Method 06, Fixed Percentage on Declining Balance"
Section A.15, "Method 16, Fixed Percentage on Declining Balance with Cross-Over"
The JD Edwards EnterpriseOne Fixed Assets system includes predefined, standard depreciation methods.
Depreciation methods 10 (MACRS Luxury Cars), 17 (AMT Luxury Cars), and 18 (ACE Luxury Cars) are user-defined depreciation methods.
These rules apply to the predefined depreciation methods that are included in the JD Edwards EnterpriseOne Fixed Assets system:
The system does not allow accumulated depreciation to exceed the depreciable basis.
The depreciable basis for an asset is the asset's original cost minus its salvage value. When the total of an asset's current depreciation and accumulated depreciation is greater than the depreciable basis, the system calculates current depreciation by subtracting the accumulated depreciation from the depreciable basis.
The system calculates a full period's depreciation for the initial period that you acquire an asset.
If you do not calculate depreciation for the month that you dispose of an asset, you should run the disposal before you run the depreciation. Exceptions to this rule are the mid-month, mid-quarter, and mid-year conventions.
The examples used throughout this section are based on this information, unless otherwise noted:
Cost: 100,000.00 USD.
Salvage value: 0.00.
Life months: 60.
Acquisition date: August 1, 1996.
This table lists some technical considerations for the predefined depreciation methods:
No depreciation is calculated.
The system depreciates the asset's cost (less salvage value) in equal amounts or daily (days in period/365.25) over the estimated useful life (life periods) of the asset, depending on the compute direction.
When you use the straight-line depreciation method, you can designate a mid-month, mid-quarter, or mid-year averaging convention. If you do not designate a convention, the system depreciates the full month for the period that you place the asset in service.
When you use straight-line depreciation, you must indicate one of these computation methods:
The system applies changing fractions each year to the adjusted cost of the asset. When you use this depreciation method, you must indicate the current year-to-date (C) computation method, as follows:
(Cost - (salvage value)) * (remaining useful life) /(sum of the years) = (year's depreciation)
(Year's depreciation) / (number of normal periods in the year) = (period depreciation)
These rules apply to this depreciation calculation:
The system converts life periods into years: for example, 36 life months / 12 months = 3 years.
The denominator is the sum-of-the-years digits (SYD), calculated as follows:
SYD = n * ((n + 1) / 2) where n = useful life in years
For example, if life months equals 36 (3 years), the SYD is 6:
3 * ((3 + 1) / 2) = 6
The numerator is the remaining useful life at the beginning of the year.
The system makes allocations throughout the useful life of the asset.
For example, if you purchase an asset during the eighth month of the year, 5/12 of the first full year's depreciation is deductible in that year. In the second year, 7/12 of the first full year's depreciation, and 5/12 of the second year's depreciation are allowed. These allocations are followed for the entire life of the asset.
To accommodate the mid-year convention for an asset, you must change the depreciation start date to the midpoint of the year.
The declining balance to cross-over methods use these percentages:
Method 03: 125 percent
Method 04: 150 percent
Method 05: 200 percent
Although the system does not consider the salvage value of an asset during the depreciation calculation, it does not depreciate an asset below its salvage value.
When you use a declining balance to cross-over method to depreciate an asset, you must indicate one of these methods of computation:
When you use the fixed percent on declining balance depreciation method, you must indicate one of these methods of computation:
| Calculation Method | Description |
|---|---|
| Current year-to-date (C) | ((Cost - (accumulated depreciation)) * (fixed percent))/ (number of normal periods) = (period depreciation) |
| Current period (P) | The current period method of computation is the same as current year-to-date, except that it does not catch up depreciation amounts within the year. If you run the first depreciation in March, the system calculates depreciation for March only. The system does not calculate depreciation for January and February. |
This section discusses:
Calculation method
Personal property
Real property
You can use the Accelerated Cost Recovery System (ACRS) method to compute the tax depreciation deduction for most tangible depreciable property that you place in service after 1980 but before 1987. Cost recovery methods and period are the same for both new and used property. The system does not use the asset's salvage value to compute ACRS allowances.
ACRS standard depreciation uses only one method of computation, the current year to date (C). This method uses this equation:
((Cost - (accumulated depreciation)) * (fixed percent))/ (number of normal periods) = (period depreciation)
The ACRS statutory recovery percentage for personal property that is placed in service after 1980 and before 1987 is determined by an IRS-prescribed table. The table takes into account the type of property (3-year, 5-year, 10-year, or 15-year) and the year that you placed the property in service.
Generally, the adjusted basis of real property is recovered over a period of 19 years for real property that is placed in service after May 8, 1985, but before 1987. For real property that is placed in service after March 15, 1984, but before May 9, 1985, the unadjusted basis is recovered over a period of 18 years. A 15-year recovery period applies to real property that is placed in service after 1980 but before March 16, 1984, and to low-income housing.
The recovery percentages for such property other than low-income housing is similar to the use of the 175 percent declining balance method with a later-year switch to the straight line method.
You can use these conventions with the ACRS depreciation method:
If you prefer a slower recovery on the cost of ACRS property than the percentages provided, you might elect to use a straight-line recovery method. This method provides a longer recovery period.
The ACRS optional depreciation method uses one of two methods of computation:
The calculation for ACRS Optional is the same as Straight Line, except:
The system bases the depreciation calculation on the cost, rather than the adjusted cost (cost less salvage value).
The system uses the mid-year convention for personal property.
The system calculates a full month of depreciation in the month that you acquire the property and no depreciation in the month that you dispose of it for 15-year real property.
The system calculates one-half month of depreciation in the months that you acquire and dispose of 18- and 19-year real property.
If depreciation information is 04 (ACRS method with Basis Reduction), the system reduces the cost by one-half of the Income Tax Credit (ITC) amount that is assigned on Master Information.
When you use the units of production depreciation method, you must indicate the current year-to-date method of computation, as follows:
((Year-to-date production) / (depreciable unit base)* ((asset cost) - (accumulated depreciation)))
The system calculates the depreciable unit base as follows:
(Original units revisions to estimate) - (prior year's production) = (depreciable unit base)
You must run the Units of Production Close procedure to roll current year information forward into the following year.
Calculation: NBV * (fixed percent) = (year's depreciation).
(Year's depreciation) / (number of normal periods) =(period depreciation)
These rules apply to this method of depreciation:
You must use the current year-to-date (C) method of computation.
The depreciation amount for a year is limited to 2,000.00.
This section discusses:
MACRS calculations.
MACRS first-year bonus rule for HR 3090.
You must depreciate most tangible property that you place in service after 1986 using the Modified Accelerated Cost Recovery System (MACRS), for tax purposes. Depending on the type of property, you recover the cost over a 3-, 5-, 7-, 10-, 15-, 20-, 27 1/2-, 31 1/2-, or 39-year period. You recover the cost by using the applicable depreciation method, the applicable recovery period, and the applicable convention.
MACRS calculations use these statutory recovery methods and conventions:
| Period of Calculation | Statutory Recovery Method |
|---|---|
| 3-, 5-, 7-, 10-, 15-, and 20-year period calculations | The system calculates depreciation using the 200 percent declining balance method, and the mid-year or mid-quarter convention with a switch to the straight-line method in later years. |
| 27 1/2-, 31 1/2-, and 39-year period calculations | The system calculates depreciation by using the straight line method and the mid-month convention. |
To compute depreciation, the system uses MACRS depreciation tables, which contain the annual percentage depreciation rates to be applied to the adjusted basis of property in each tax year. The tables include the appropriate convention and a switch from the declining balance method to the straight-line method in the appropriate year.
Use one of these conventions with this depreciation method:
| Calculation Method | Description |
|---|---|
| Mid-month | You can apply this convention to residential and nonresidential real property. Based on this convention, the system calculates one-half month's depreciation for the month that you acquired or disposed of the property. |
| Mid-year | Apply this convention to property other than residential and nonresidential property. Based on this convention, the system calculates one-half year's depreciation for the year that you acquire or dispose of the property. |
| Mid-quarter | You can apply this convention to all property other than nonresidential real property and residential rental property if more than 40 percent of the total basis of such property is placed in service during the last three months of the tax year. Based on this convention, the system calculates depreciation at the midpoint of the quarter that you acquire or dispose of the property. The system computes the MACRS deduction for the first year by determining the depreciation for the full tax year and then multiplying it by one of these percentages, depending on the quarter that you placed the property in service:
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This rule applies only to assets with a 20-year or less life span. [reference to the 30 percent 1styear bonus related to HR 3090 for assets placed in service between September 11, 2001 and September 10, 2004 here.]
Mid-month information does not apply to this rule.
To add a MACRS 1st year bonus rule for HR 3090:
Set up three new formulas, using the Depreciation Formula Revisions program (P12853D).
Set up the formulas according to this example:
| Formula ID | Formula Description | Formula | Multiplier/Constant |
|---|---|---|---|
| 541 | First Year Bonus 30 percent | ((10-(10*12))*11)+(10*12) | .300000 |
| 542 | Basis*Multiplier | 10*11 | N/A |
| 543 | 70 percent of Cost | 01*12 | .700000 |
Run the Global Depreciation Rules Update program (R12858) to update these new formulas to the Depreciation Formulas table (F12853).
Add the MACRS First Year Bonus code (50) to user-defined code (UDC) table 12/DM.
Add these values to the new formulas:
Depreciation Formula for year 1: 541.
Basis Formula for year 1: 502.
Depreciation Formula for years 2-11: 542.
Basis Formula for years 2-11: 543.
You should not change the 999 life year rule.
This table shows an example of a 10-year rule using the MACRS First Year Bonus Rule for HR 3090:
| Rule Element | Value |
|---|---|
| Depreciation Method | 50 |
| Initial Term Apportionment | Y |
| Compute Direction | C |
| Life | 120 |
| In Service From Date | September 11, 2001 |
| Effective From Date | September 11, 2001 |
| Rule Description | MACRS 1stYear Bonus - 10 Year |
| In Service Through Date | September 10, 2004 |
You can use the MACRS alternative depreciation method for these categories of property:
Tangible property used outside the U.S.
Property that is tax exempt.
Property that is tax exempt and bond financed.
Property that is imported from a foreign country for which an executive order is in effect because the country maintains trade restrictions or engages in other discriminatory acts.
Property for which you have made an alternative MACRS election.
If you use the MACRS Alternative depreciation method, you must indicate the inception-to-date (I), current period (P), or remaining life (R) method of computation. You must also indicate a mid-month, mid-year, or mid-quarter convention.
You can use this depreciation method to recover costs by using a straight-line method over the regular recovery period or a longer recovery period. You must make this election on the tax return for the year that you placed the property in service. The ACRS straight-line depreciation tables contain the annual percentage depreciation rates. The rates are applied to the unadjusted basis of property in each tax year.
You must indicate the current year-to-date method of computation with the ACRS Alternate Real Property depreciation method.
The system calculates the fixed percent of cost depreciation method as follows:
Cost * (fixed percent) = (year's depreciation)
(Year's depreciation) / (number of normal periods) =(period depreciation)
You must indicate the current year-to-date (C) or current period (P) method of computation with this depreciation method. The current period method is the same as the current year-to-date with the exception that it does not catch up depreciation amounts within the year. If you run the first depreciation in March, the system calculates depreciation for the month of March only. The system does not calculate depreciation for January and February.
You must indicate one of these methods of computation with the fixed percent on declining balance to cross-over depreciation method:
| Calculation Method | Description |
|---|---|
| Remaining life (R) | (NBV (if greater than zero)) * (fixed percent) / (life months) = (period depreciation)
You must apply these rules to this calculation:
|
| Inception-to-date (I) | NBV * (fixed percent) / (number of life months) = (period depreciation)
You must apply these rules to this calculation:
|