The Inflation Accounting for Assets process restates assets to their current value in respect of cost and associated depreciation. Revaluation reserves generated by this process are amortized over the useful life of the asset by transfers to the general fund.
From April 2000 UK central government departments, government agencies, and non-departmental public bodies are required by law to produce accruals based accounts in line with the UK Treasury's Resource Accounting and Budgeting (RAB) initiative. As part of this initiative fixed assets must be revalued annually according to the rules of Modified Historic Cost Accounting.
RAB aims to correctly attribute the resources consumed in achieving the aims of government to calculate the true cost of government. This true cost needs to be stated in current monetary terms particularly in relation to fixed assets, which may have been in use for many years. The measure of the amount of resource consumed in respect of an asset employed, is the charge for depreciation during the asset's use.
Assets are revalued in line with government issued price indexes and are required to be professionally valued every few years.
Inflation Accounting for Assets works with Oracle Assets to help governmental bodies with their regulatory requirements. All revaluation accounting entries are created in Inflation Accounting for Assets while historic accounting entries are created in Oracle Assets; both sets of entries are passed to the same set of books within the general ledger.
The Inflation Accounting for Assets process provides the capability to:
Revalue assets and their associated depreciation to reflect changing market values as represented by government issued price indexes or manual professional valuations.
Record professional valuations one by one or via a mass upload function to bring in valuations held in spreadsheets.
Load beginning revaluation balances via the Inflation Accounting for Assets Implementation Toolkit.
Access the accounting effect of revaluation on each asset with a drill down to the history of cost revaluations.
Create journal entries to reflect changes in asset values within the general ledger.
Support the revaluation process with a suite of operational and reconciliation reports.
Oracle Assets must be installed.
For information on installing Oracle Assets, see Setup Steps , Oracle Assets User's Guide.
Oracle General Ledger must be installed.
For information on installing Oracle General Ledger, see General Ledger Setup Steps, Oracle General Ledger User's Guide.
In normal operation Inflation Accounting for Assets processing starts where Oracle Assets functionality stops, with the closure of the current period as part of the depreciation procedure. When the historic accounting for assets is completed, the book is ready to be revalued.
Assets need to be maintained at market values; this is determined by reference to Government published price indexes or by professionally qualified valuers. The Government indexes are held in the system and are linked to the asset category. All assets within that category can be revalued by executing a simple process.
If necessary, users can revalue only certain assets and overwrite the proposed revaluation with their own valuation. This process includes a mandatory preview stage that gives the opportunity to verify the proposed revaluations before they are formally updated within the system. During the preview stage assets are validated to confirm they are appropriate for revaluation. For example, a negative asset may not be revalued or the index for the period to be revalued may not have been entered; in these cases an exception is raised to explain the reason. These exceptions can be viewed from the revaluation form.
Professional valuations are performed cyclically and are often supplied in large numbers and in computerized form, for example in a spreadsheet file. Accordingly Inflation Accounting for Assets provides a mass upload process to support this requirement.
Note: For information on this process, see Mass Upload of Asset Valuations.
Before users can perform an asset cost revaluation for a particular period, it is necessary to run depreciation with the Close Period check box selected. This process also performs the periodic depreciation revaluation automatically. This revaluation is performed using price indexes or manual professional valuations. In normal operation, this form of revaluation is performed annually but users can perform this function as frequently as is required. Within the same period, users can, if necessary, run an indexed revaluation followed by a professional revaluation for the same asset. It is not possible to run an indexed revaluation for an asset in a period that has already been revalued by indexed or professional valuation.
Asset cost revaluation adjusts the cost by the change in the index from the time that it was previously revalued to that of the last closed period. The change in value is adjusted against the asset cost account and offset against the revaluation reserve. If the asset revaluation takes the value below the depreciated historic cost, the offset accounting entry is made to the operating expense account. Whenever a revaluation switches from above to below the depreciated historic cost, or vice versa, the movement is apportioned between the revaluation reserve account and the operating expense account on a pro-rata basis.
Revaluation of the prior year accumulated depreciation uses the same revaluation level, whether indexed or professional, as that used for the cost revaluation. The amount of the revaluation is charged to the revaluation reserve and offset to the accumulated backlog depreciation account. If the revaluation is below the depreciated historic cost, the movement is charged to the operating expense account instead of the revaluation reserve. If a particular revaluation moves the cost from above to below the depreciated historic cost or vice versa, the cost movement is apportioned between the revaluation reserve and the operating expense account.
Note: In arriving at the split of the total accumulated depreciation between prior years and the current year, the system apportions depreciation on a linear basis according to the elapsed life of the asset.
Periodic depreciation revaluation revalues the historic cost up to the price level of the last asset cost revaluation. The current year depreciation expense must now be brought up to the price level of the current revaluation. The accounting entries are a charge to the depreciation expense account and offset to the accumulated depreciation account.
Note: In arriving at the split of the total accumulated depreciation between prior years and the current year, the system apportions depreciation on a linear basis according to the elapsed life of the asset.
The revaluation reserve is amortized to the general fund over the life of the asset, so that the revaluation reserve represents the difference between the revalued net book value and the historic net book value. The amount of the amortization is the same as the revaluation element of the current year’s depreciation, and as it is the same value the accounting entries are generated at the same time.
The accounting entries are a debit to the revaluation reserve and a credit to the general fund. If the cost revaluation takes the value below the depreciated historic cost, no transfer to the general fund is appropriate for the year and any entries generated from the periodic depreciation revaluation are reversed.
Change in Cost on Revaluation = Historic Cost * (Current Cumulative Revaluation Factor - Previous Cumulative Revaluation Factor)
Cumulative Revaluation Factor (Professional) = User-supplied Gross Cost / Previous Revalued Gross Cost * Previous Cumulative Revaluation Factor
Cumulative Revaluation Factor (Indexed) = Current Revaluation Period Price Index / Previous Revaluation Period Price Index * Previous Cumulative Revaluation Factor
Current Year Revalued Depreciation Expense = Current Year Historic Depreciation * (Current Cumulative Revaluation Factor - Previous Cumulative Revaluation Factor)
Backlog Accumulated Depreciation = Prior Year Historic Depreciation * (Current Cumulative Revaluation Factor - Previous Cumulative Revaluation Factor)
Amortization of Revaluation Reserve = Current Year Historic Depreciation * (Current Cumulative Revaluation Factor - Previous Cumulative Revaluation Factor)
Period Historic Depreciation = Historic Accumulated Depreciation / Total Elapsed Periods
Current Year Historic Depreciation = Historic Accumulated Depreciation * Elapsed Periods in Current Year / Total Elapsed Periods
Prior Year Historic Depreciation = Historic Accumulated Depreciation * ((Total Elapsed Periods - Elapsed Periods in Current Year) / Total Elapsed Periods)
Note: Elapsed periods include the last closed period.
Salvage Value Correction = (Historic Depreciation Amount / (Cost - Salvage Value)) * Salvage Value
Salvage Value-Corrected Depreciation Amount = Historic Depreciation Amount + Salvage Value Correction
Periodic depreciation is an Oracle Assets process which calculates depreciation at the end of each period. Revaluation of depreciation under Inflation Accounting for Assets rules is an extension of this process which is launched automatically when periodic depreciation is run.
Depreciation is run after all transactions are entered into the corporate book for the period. Oracle Assets’ Periodic Depreciation process calculates historic depreciation and performs the catch-up processes. Periodic revaluation of depreciation is performed as part of the depreciation process only if the close period option is selected.
This revaluation restates the current period historic depreciation to current terms by reference to the index movement from the date the asset was placed in service (DPIS) to the date of the last cost revaluation. It is not revalued to the current period index as depreciation and asset cost must stay at the same revaluation level at all times.
The revaluation is debited to depreciation expense and credited to accumulated depreciation. If the indexes are falling below cost, these entries are reversed.
The revaluation reserve is amortized to the general fund over the life of the asset, so that the revaluation reserve represents the difference between the revalued net book value and the historic net book value. The amount of the amortization is the same as the revaluation element of the current year's depreciation and as it is the same value the accounting entries are generated at the same time.
The amortization is debited to revaluation reserve and credited to backlog accumulated depreciation. If the indexes are falling below cost no entries are generated.
Under normal circumstances this is only required when an occasional revaluation is performed. However, it will also occur when periodic depreciation is run in a period in which an expensed cost, life or salvage value adjustment has been performed. In these events the new accumulated depreciation is split linearly between current year and prior years. The prior years’ accumulated backlog depreciation portion is revalued to the same level as the asset cost.
The difference between the new revalued accumulated backlog depreciation and the value before the adjustment is created as an entry to the accumulated backlog depreciation account and offset to the revaluation reserve or operating expense account.
Current Period Depreciation Expense = Current Period Historic Depreciation * (Current Cumulative Revaluation Factor - 1)
Amortization of Revaluation Reserve = Current Period Historic Depreciation * (Current Cumulative Revaluation Factor - 1)
Backlog Accumulated Depreciation = Prior Year Historic Depreciation * (Current Cumulative Revaluation Factor - Previous Cumulative Revaluation Factor)
Note: Backlog accumulated depreciation is only calculated in the periodic depreciation revaluation process when an expensed adjustment has been performed in that period.
Salvage Value Correction = (Historic Depreciation Amount / (Cost - Salvage Value)) * Salvage Value
Salvage Value-Corrected Depreciation Amount = Historic Depreciation Amount + Salvage Value Correction
The catch-up process is required to:
bring assets up to date after being entered with a date placed in service belonging to a prior period
recalculate the asset revaluation following an event such as reclassification to another asset category where a different index is involved
The process is very closely linked to the periodic depreciation process, as this is normally the launching pad for revaluation catch-up. Catch-up can be considered as a collection of programs designed to respond to different lifetime events which an asset may encounter. All of these programs are called automatically, without user intervention. Some of them are triggered by the entry of the event into Oracle Assets, for example, a reclassification is actioned at the point it is entered into Oracle Assets whereas a prior period transfer is actioned when depreciation is run following entry of the transfer transaction into Oracle Assets.
Note: Transactions other than adjustments cannot be entered against an asset which has already had a cost, life, or salvage value adjustment performed against it within that period. For example, a transfer must be entered before the adjustment or be held over to the next period and backdated if necessary.
When an asset is entered into the system with a Date Placed In Service (DPIS) in a prior period or year, its cost and depreciation must be brought fully up to date before it can be revalued in routine processing.
Catch-up is performed when depreciation is run. The catch-up process, which is launched when depreciation is next run, brings assets up to date as at the end of the period prior to the current period. The current period is then the first period that is processed normally. For example, an asset is entered in May with a DPIS of the previous February. When depreciation is run in May it launches a catch-up for the periods of February through to April, and the same depreciation run also launches a periodic depreciation revaluation that revalues the month of May as the first routine period of processing.
Asset cost
Asset cost is revalued once in each year of catch-up using the default revaluation period entered in the Inflation Accounting Options window. The revaluation accounting entries generated are an adjustment to the asset cost account and an offset to the revaluation reserve. If the revaluation is below the asset cost, the offset is to the operating expense account.
Depreciation expense
The historic charge calculated by Oracle Assets is a single catch-up charge entered in the current period. In Inflation Accounting for Assets this value is broken down into the value for each fiscal year of catch-up. Each year is then revalued in turn and the sum of these values is entered into the current period. The historic depreciation expense must be broken down into individual years to calculate the correct revaluation reserve balance. The accounting entries generated are a debit to depreciation expense and a credit to accumulated depreciation. If indexes are falling, these entries are reversed.
Accumulated depreciation
This account receives the offset revaluation entries from each year's catch-up depreciation expense. It does not include the revaluation of the prior years’ accumulated depreciation.
Accumulated backlog depreciation
When the addition of an asset is backdated into previous years it is necessary, at each annual revaluation, to revalue the current year expense and the prior years’ accumulated depreciation independently and to derive different accounting entries. The entries for the revaluation of accumulated backlog depreciation are a debit to the revaluation reserve and a credit to the accumulated backlog depreciation account. If the indexes are falling, these entries are reversed up to the point that the revalued asset cost falls below the historic cost. In these circumstances the entries are a debit to the accumulated backlog depreciation account and a credit to the operating expense account.
Note: Special rules apply if users supply a legacy system-calculated year-to-date and accumulated depreciation value when the asset is first entered. In this case it is necessary to assume that the timing pattern of past years’ depreciation charges is linear, and to attribute an equal portion of depreciation to each prior year accounting period.
Amortization of the revaluation reserve
The revaluation reserve needs to be reduced over the life of the asset by a transfer to the general fund. The purpose of this amortization is to ensure that the revaluation reserve is equal to the difference between the asset’s revalued net book value and its historic net book value.
The transfer is calculated as the difference between the revalued depreciation expense and the historic depreciation expense for each year within the catch-up time span. The accounting entries generated are a debit to the revaluation reserve and a credit to the general fund.
Revaluation reserve
The revaluation reserve represents the extra worth to the organization from the increase in an asset’s value. During catch-up, the revaluation reserve receives the offset entry from the revaluation of the asset cost, the prior year’s accumulated backlog depreciation, and the transfer to the general fund. When the asset is revalued above its historic cost, at any time the revaluation reserve balance should be equal to the difference between the asset’s revalued net book value and its historic net book value.
Operating account
If the index causes the asset to fall below the depreciated historic cost, the revaluation reduction in cost and prior year accumulated depreciation are offset against the operating account instead of the revaluation reserve.
When an asset is transferred from one cost center to another, the balances on the asset cost, revaluation reserve, accumulated depreciation, accumulated backlog depreciation, and general fund need to be transferred to the new owning cost center. The year-to-date expense balances on depreciation and, if present, the operating account remain with the old cost center representing the old cost center’s expense of using that asset in the current year. New year-to-date expense balances are accumulated for the new cost center. With prior period transfers, all depreciation and revaluation expense movements are rolled back to the effective transfer date.
Transfers of balance sheet balances are performed the next time depreciation is run.
Current period transfers are the same as for prior period transfers without the rollback to a prior period transfer date. Recalculation and transfer of balance sheet balances are performed as the transaction is entered.
Assets are reclassified to move an asset from one category to another. Reclassification might be due to a restructuring of category codes or to correct a coding or input error. The effect is that an asset might move to a category code with a different revaluation index. If this happens, all balances must be recalculated from the date placed in service. When the balances are recalculated, accounting entries are generated to do the following:
negate the balance sheet balances of the old category
create the balance sheet balances of the new category
create the additional current year depreciation revaluation expense, if any, due to the possible use of a different index
If the new category has the same index as the old category, it is only necessary to transfer the balance sheet balances to the account codes of the new category.
As with transfers, the year-to-date expense balances of depreciation and operating expense account, if present, remain with the old category.
Transfers of balance sheet balances are performed as the transaction is entered.
When an asset is sold or retired from use, historic balances are moved by Oracle Assets to the gain or loss on sale of asset account. Inflation Accounting for Assets moves the cost revaluation and depreciation revaluation to the gain or loss on sale of asset account. The accounts will reflect the correct gain or loss on sale of the revalued net book value. The balance on the revaluation reserve is transferred to the revaluation reserve retired account and the balance on the general fund in respect of revaluation reserve amortization is not transferred. If a retirement is effective from a period within the current year but prior to the current period, any revaluation effect is rolled back to the effective retirement date.
Calculation of retirement balance transfers are performed in the Calculate Gains and Losses program. This program can be run independently or as part of the depreciation procedure.
Reinstatement of a previously retired asset brings an asset back into an active state as if the retirement had never taken place. Inflation accounting reinstates all revaluation balances in the same way. Periodic revaluation of current period depreciation and the amortization of the revaluation reserve is calculated for the gap between retirement and reinstatement. If a cost revaluation would normally have taken place in this gap, it must be performed manually after the reinstatement takes place.
Reinstatement is calculated in the Calculate Gains and Losses program. This program can be run independently or as part of the depreciation procedure.
Cost adjustments reflect additional monies being spent on a particular asset. The additional asset cost is revalued to the same revaluation level as the underlying asset. This additional revaluation amount is debited to the asset cost account and offset to the revaluation reserve. If the asset has been negatively revalued, the revaluation entries are a credit to the asset account and an offset to the operating expense account.
Revaluation entries for cost adjustments are created when depreciation is next run. Any additional depreciation due to the cost adjustment is calculated as part of the normal depreciation process. No specific additional entries are required.
Cost adjustments can be amortized or expensed. An amortized adjustment means that the asset's newly adjusted net book value is depreciated over its remaining life. An expensed adjustment means that the newly adjusted cost is depreciated evenly over its original life. In this case there is an over- or under-depreciation of the asset to date and this is corrected by an amended depreciation charge in the current period.
Note: Cost adjustments can be backdated to a prior period but Inflation Accounting for Assets limits the degree of backdating to a period within the current fiscal year.
Life adjustments reflect a reassessment of the expected useful life of a particular asset. Any additional depreciation due to the life adjustment is calculated as part of the normal depreciation process. No specific additional entries are required.
Life adjustments can be amortized or expensed. An amortized adjustment means that the asset's net book value is depreciated over its new remaining life. An expensed adjustment means that the cost is depreciated evenly over its new life. This means that there is an over- or under-depreciation of the asset to date and this is corrected by an amended depreciation charge in the current period.
Note: Life adjustments can be backdated to a prior period but Inflation Accounting for Assets limits the degree of backdating to a period within the current fiscal year.
Salvage value adjustments reflect a reassessment of the expected residual value of a particular asset at the end of its life. Any additional depreciation due to the salvage value adjustment is calculated as part of the normal depreciation process. No specific additional entries are required.
Salvage value adjustments can be amortized or expensed.
Note: Salvage value adjustments can be backdated to a prior period but Inflation Accounting for Assets limits the degree of backdating to a period within the current fiscal year.
The formula used for the adjustment of an asset with salvage value is as follows:
Salvage Value Adjustment Amount = ((Historic Depreciation Reserve Before Adjustment / (New Cost - New Salvage Value)) * New Salvage Value) - ((Historic Depreciation Reserve Before Adjustment / (Old Cost - Old Salvage Value)) * Old Salvage Value)
This "zoom" is called from the View menu when enquiring on an inflation accounting asset in the financial information enquiry. It enables users to move from the historic position to the revalued position, with the option of viewing the revaluation cost history. The zoom provides a view of the main inflation accounting balances of the revaluation reserve, operating account and depreciation reserve. Each account is broken down into its constituent elements, for example the revaluation reserve shows its movement caused by cost revaluation, backlog revaluation and amortization to the general fund. Different tabs are provided for the accumulated, year-to-date, and period positions.
Once the historic depreciation period is closed, it is advisable to only view this enquiry once all inflation accounting processing is completed for that period. For example, a previewed revaluation does not update this enquiry. The update is made only when the revaluation is successfully completed in Run mode.
These reports provide assistance with reconciling revalued asset figures to the General Ledger. The reports show how an asset has changed within a range of periods. Movements due to events such as transfer to another cost center and reclassification to another asset category are shown in separate columns explaining the change between the opening and closing balance. The summary reports display totals at cost center, balancing segment, and report levels, and the detail reports display individual asset details and totals at cost center, account, balancing segment, and report levels.
The following reports are generated:
Backlog detail
Displays values calculated for backlog depreciation; shows beginning balance, additions, depreciation, adjustments, retirements, reclassifications, transfers, and ending balance for each asset.
Backlog summary
Supports the reconciliation of backlog accumulated depreciation accounts with the General Ledger; shows beginning balance, additions, depreciation, adjustments, retirements, revaluation, reclassifications, transfers, and ending balance for each backlog account. Totals are displayed for each balancing segment and cost center.
Cost detail
Displays historic cost accounting values and Inflation Accounting for Assets values for each asset; shows beginning balance, additions, adjustments, retirements, revaluation, reclassifications, transfers, and ending balance.
Cost summary
Reconciles asset cost accounts with the General Ledger; shows beginning balance, additions, adjustments, retirements, reclassifications, transfers, and ending balance for each asset account. Totals are displayed for each balancing segment and cost center.
Operating expense detail
Displays transactions for assets revalued below the historic cost; shows additions, depreciation, adjustments, revaluation, reclassifications, transfers, and total movements column for each asset.
Operating expense summary
Reconciles asset operating expense accounts with the General Ledger; shows additions, adjustments, revaluation, reclassifications, transfers, and a total movements column for each asset account. Totals are displayed for each balancing segment and cost center.
Reserve detail
Displays historic figures and Inflation Accounting for Assets figures for depreciation reserve accounts; shows beginning balance, additions, depreciation, adjustments, retirements, revaluation, reclassifications, transfers, and ending balance for each asset.
Reserve summary
Reconciles asset depreciation reserve accounts with the General Ledger; shows beginning balance, additions, depreciation, adjustments, retirements, revaluation, reclassifications, transfers, and ending balance for each asset account. Totals are displayed for each balancing segment and cost center.
Revaluation reserve detail
Displays historic figures and Inflation Accounting for Assets figures for revaluation reserve accounts; shows beginning balance, additions, depreciation, adjustments, retirements, reclassifications, transfers, and ending balance for each asset.
Revaluation reserve summary
Reconciles asset revaluation reserve accounts with the General Ledger; shows beginning balance, additions, adjustments, retirements, reclassifications, transfers, and ending balance for each asset account. Totals are displayed for each balancing segment and cost center.
For information on the Inflation Accounting: Reconciliation Reports, see Inflation Accounting for Assets Reconciliation Reports.
These reports provide an analysis of all assets broken down by asset category, balancing segment, and cost center. As an asset may be assigned to more than one cost center, the assets appear in each relevant cost center according to the asset distributions. The reports have been developed using Oracle's RXi technology which allows users to customize the report content and publish reports in different forms such as printing, posting to web pages, or downloading to a spreadsheet.
Although each of the reports is aimed at a particular revaluation topic it is also able to provide a variety of other operational audit trail data. This is provided to allow users to take advantage of the customization and downloading capability of RXi reports. Each report is provided with a default layout, which shows the main information; this can be copied and amended to show the precise information required by the user from all the information that is available from the report’s data retrieval stage. These customized reports can be named and stored for future use.
With the exception of the Depreciation Summary and Detail reports, all balances represent the accounting entries generated by Oracle Assets and Inflation Accounting for Assets processes.
The following reports are generated:
Summary
Shows a high level summary of the balances of groups of assets for a range of cost centers or categories, including the revalued cost, net revaluation reserve, accumulated backlog depreciation, accumulated depreciation, general fund, and the net operating account. When an asset is transferred, the entire operating account is reported on the destination cost center or company, although the actual accounting entries are not transferred.
Detail
Shows an asset distribution line breakdown of the summary report as of a specified period end.
Revaluation reserve summary
Shows a high level summary of the make-up of the revaluation reserve for a group of assets in a range of cost centers or categories, including the revalued cost; revaluation reserve movements caused by the following: cost revaluation, accumulated backlog depreciation, and general fund. The net revaluation reserve balance is the combined effect of revaluation reserve movements.
Revaluation reserve detail
Shows an asset distribution breakdown of the revaluation reserve summary report as of a specified period end.
Depreciation summary
Shows a high level summary of the make-up of the depreciation position for a group of assets in a range of cost centers or categories, including the period depreciation charge, year-to-date depreciation charge, accumulated depreciation, and accumulated backlog depreciation. The year-to-date depreciation figure for an asset is calculated linearly and is prorated across the asset distribution lines based on the number of units and number of periods the unit was assigned for each distribution line.
Depreciation detail
Shows an asset distribution line breakdown of the depreciation summary report as of a specified period end.
Note: To attain period and year-to-date depreciation balances which are not distorted by exceptional transactions such as prior period additions and backdated adjustments, these depreciation balances are calculated by reference to the formulae described in Linear Split of Historic Accumulated Depreciation in Occasional Revaluation. These values are then multiplied by the cumulative revaluation factor.
Operating expense summary
Shows a high level summary of the make-up of the operating expense for a group of assets in a range of cost centers or categories, including operating expense cost adjustments and operating expense backlog adjustments. The net operating account balance is the combined effect of operating expense movements.
Operating expense detail
Shows an asset distribution breakdown of the operating expense summary report as of a specified period end.
For information on the Inflation Accounting: Asset Balance Reports, see Inflation Accounting for Assets Operational Reports.
This report provides details of the journal entries generated by Inflation Accounting for Assets. The journal entries are broken down by asset category, company, and cost center.
The report displays the asset category, asset number, accounting period, transaction type, accounting flexfield, and the debit and credit amount. It can be run for a particular transaction type or all transaction types.
The following transaction types are available:
additions
cost adjustments
revaluation, cost and depreciation during the occasional revaluation process
depreciation, during periodic depreciation revaluation
full retirements, on sale or end of useful life
partial retirements, on sale or end of useful life
reclassifications, to another asset category
reinstatements, following retirement
transfers, to another cost center
For information on the Inflation Accounting: Adjustments Report, see Generating Inflation Accounting: Adjustments Report Procedure.
This report provides projections of depreciation charges based on revalued costs. The report can be run for future periods if the appropriate projected price indexes are entered in the system. If no future price index projections are entered, the report is based on the latest revaluation information.
Note: Depreciation projections are based on the depreciation charge for the last closed accounting period.
When a report is run, users can choose in which annual period the asset cost is revalued. For example, users can run a projection report in August to project for the next thirty periods’ depreciation, choosing to revalue the assets’ costs in each September during these periods.
For information on the Inflation Accounting: Projections Report, see Running Projections Procedure.
Limitations have been imposed on the normal use of Oracle Assets to safeguard the proper working of Inflation Accounting for Assets due to potential conflicts.
The table below describes the limitations imposed on Oracle Assets when using Inflation Accounting for Assets.
| Limitation | Description |
|---|---|
| Oracle Assets Revaluation Processes | Oracle Assets’ revaluation processes cannot be performed for the corporate book after the book has been defined in the Inflation Accounting Options window. Other books can use Oracle Assets’ revaluation processes as usual. |
| Straight-Line Depreciation Method | Only straight-line depreciation methods are recognized by inflation accounting, consistent with public sector practice. |
| Current Period Pro-rate Convention | Only the current period pro-rate convention can be used with inflation accounting, consistent with public sector practice. |
| Depreciation Flag | To ensure consistent accounting treatment, an asset cannot be changed from depreciating to non-depreciating after revaluation. |
| Assets with Wrong Date Placed in Service | When an asset is revalued but has a wrong date placed in service, the assets must be retired and re-entered. |
| Assets with Wrong Number of Units | When an asset has been revalued but has the wrong number of units, the assets must be retired and re-entered. |
| Revaluation Required after Reinstatement | If an asset is reinstated a few periods after retirement, all periodic depreciation revaluations are caught up. Any occasional revaluations performed against this asset, if it was partially retired, or its category are not caught up. In this case, users may carry out a professional or indexed revaluation to bring the asset up to date once the period of reinstatement is closed. |
| Additional Asset Cost Entered as Subcomponent | Additional asset costs which are entered as sub-components should only be entered as positive values. |
| Group Depreciation | Controls to prevent the use of Group Depreciation functionality with Inflation Accounting for Assets are enforced at Asset Book Level and in the Inflation Accounting Options window. The 'Allow Group Depreciation' check box on the Accounting Rules tab of the Book Controls window cannot be updated once a book has been selected for Inflation Accounting. This validation also prevents the Inflation Accounting Implementation and Revaluation Upload processes from processing books that have Group Depreciation enabled. |
| Mass Property Assets | Categories assigned as Mass Property Eligible cannot be revalued. Inflation Accounting for Assets allows the assignment of a Mass Property Eligible category in the Inflation Accounting Options window, but users cannot enable the Allow Indexed Reval and Allow Prof Reval flags when the Mass Property Eligible flag is enabled. Once a category is assigned to an Inflation Accounting book through the Inflation Accounting Options window, a control is triggered that prevents the update of the Mass Property Eligible flag. For example, a category that was not previously eligible for Mass Property cannot be flagged as eligible, and a category that was previously flagged as eligible for Mass Property cannot become ineligible. |
| Negative Assets | Standalone assets entered with a negative cost are incompatible with Inflation Accounting for Assets, and are reported as exceptions instead of being processed. Any negative assets that are filtered out are displayed in the Exceptions window. |
| Prior Period Amortized Adjustments | Prior period amortized adjustments (cost, life or salvage value) cannot be backdated earlier than the beginning of the current fiscal year. |
| Transactions in the Same Period as Adjustments | Asset transactions, such as transfers or reclassifications cannot be performed against an asset that has already been the subject of an adjustment (cost, life or salvage value) within that period. Such transactions must be performed prior to the adjustment. They may also be performed in the following period and, if allowed, backdated to the earlier period. |
| Amortized Salvage Value Adjustment | When an amortized salvage value adjustment is performed, Inflation Accounting for Assets charges the portion of the adjustment that relates to prior periods immediately in the current period, with the remainder spread evenly over the remaining life so as to leave the historic salvage value as both the revalued and historic net book value. |
| Occasional Revaluation Using a Linear Revaluation Method | When depreciation is revalued as part of the occasional revaluation process, Inflation Accounting for Assets splits the accumulated depreciation between current and prior years in a linear ratio of the number of elapsed periods in the current year-to-date to prior year periods. |
| Projection Report | The projected value of depreciation in the Inflation Accounting for Assets Projection report is based solely on the depreciation charge for the last closed period. Inactive asset distributions created by partial unit retirements, transfers, or reclassifications are not processed by the Projection report. |
| Reinstatement of Partial Retirements | Users cannot reinstate an asset that has been partially retired if the occasional revaluation process has been run between the original partial retirement and the reinstatement. the periodic depreciation process will fail if it encounters a reinstatement of a partial retirement. |
Oracle Assets and Oracle General Ledger must be installed and mandatory setup steps completed before setting up Inflation Accounting for Assets.
Inflation Accounting for Assets requires little setup in addition to that for Oracle Assets. Price indexes to be used to revalue assets must be defined, unless all assets are to be revalued by reference to professional revaluations. It is also necessary to define specific accounting flexfield combination values for posting general ledger entries as a result of asset revaluation.
Price indexes are held to represent the rate of change in the value of assets. Numerous indexes can be held in the system and the index that best reflects the price movements of a particular category of assets can be linked to that category of assets.
When an index is linked to an asset category it must cover the full time span of all assets within that category from the earliest date placed in service onwards.
Price indexes can be updated as necessary. Estimates of anticipated price index values can be entered and used in the Inflation Accounting: Projections Report. This report enables users to view the future depreciation charges for assets based on the estimated price indexes.
Note: These estimates must be updated with the actual values before revaluations are carried out in normal operation.
For information on price indexes, see Setting Up Calendar Price Indexes for Inflation Accounting, Oracle Public Sector Financials (International) Implementation Guide.
For information on the Inflation Accounting: Projections Report, see Running Projections Procedure.
The corporate book is linked to Inflation Accounting for Assets processes in the Inflation Accounting Options window. This enables users to do the following:
Select the journal source code to be associated with all journal entries created by Inflation Accounting for Assets.
Select the journal categories to be used for accounting entries generated by Inflation Accounting for Assets.
Specify the default month of asset cost revaluation and associated depreciation to be used when adding an asset with a prior period date placed in service, or reclassifying an asset to another category.
Select the additional accounts, category by category, that are specific to Inflation Accounting for Assets as follows:
backlog accumulated depreciation
general fund
operating expense
revaluation reserve
revaluation reserve retired
Select the price index to be used in the revaluation of assets within that category.
Allow indexed revaluation of assets within that category.
Allow professional revaluation of assets within that category.
For information on the Inflation Accounting Options window, see Enabling Corporate Books, Oracle Public Sector Financials (International) Implementation Guide.
Inflation Accounting for Assets is compliant with the Oracle Assets Security by Book feature. Security by book enables the implementation of organizations and security hierarchies to determine which corporate books a user can access. For example, users within an organization can access books in their own and subordinate organizations, but cannot view books assigned to their parent organization.
For information on setting up security by book in Oracle Assets, see Setting Up Security by Book, Oracle Assets User's Guide.
The implementation process enables users to select the most appropriate course of implementation, maximizing use of Modified Historic Cost Accounting (MHCA) data from previous releases of Oracle Public Sector Financials (International)’s MHCA functionality.
There are two types of Inflation Accounting for Assets users. The type of user is determined by which system was in use immediately prior to implementing Inflation Accounting for Assets. Users might need to move to Inflation Accounting for Assets from a previous release of MHCA, to re-implement, or to move from a legacy system.
For example, the first type of user might have used a previous version of Oracle Public Sector Financials (International)’s MHCA continuously to the date of migrating to Inflation Accounting for Assets functionality. The second type of user might have either never used a previous version of Oracle Public Sector Financials (International)’s MHCA or have stopped using a previous version at some point before the implementation date. A gap is therefore created in the MHCA history.
In either case, it is extremely important that the revalued balances being brought into Inflation Accounting for Assets reconcile with the equivalent balances in General Ledger. Inflation Accounting for Assets provides functionality to assist users in this reconciliation process. Part of this process involves the ability, if necessary, to update the proposed revalued costs and other accounting balances immediately prior to their transfer to Inflation Accounting for Assets as the revalued start position.
Care should be taken with this update function, as if an error is made at this stage, that error will be carried forward within Inflation Accounting for Assets and can only be corrected in the following ways.
If an error is made in the revalued asset cost, depreciation, and backlog figures, it will be corrected automatically when the asset cost is next revalued as part of the occasional revaluation process. If this asset is not revalued prior to the end of its life, it must be retired to bring any remaining net book value into the Profit and Loss account.
If an error is made in the Net Operating Account or General Fund balance, it is not corrected by subsequent occasional revaluation processes and is carried forward until the asset is either reclassified or retired.
In this situation, users have used Oracle Public Sector Financials (International)’s MHCA in a previous release and have a full MHCA history up to the date of implementation.
Implementation of Inflation Accounting for Assets enables users to select the MHCA tax book from which the data is to be extracted. This data includes the revaluation of asset costs, revaluation reserve, and backlog depreciation. To reconcile, and if necessary update, the extracted data, it is made available to users in the Inflation Accounting: Implementation Reconciliation window or downloaded to a spreadsheet via Web ADI.
Regardless of the chosen method, users can then update Inflation Accounting for Assets’ MHCA balances to ensure agreement with their general ledger account balances. Users can also manually input balances for the new Inflation Accounting for Assets accounts of Operating Account and General Fund. Users cannot update any historic or corporate book balances. After corrections are made, the balances can be transferred to Inflation Accounting for Assets as the new system starting position.
Although the history is imported from the MHCA tax book, the non-Inflation Accounting for Assets historic book values must agree with their corporate book equivalents. This is important since all future Inflation Accounting for Assets movements will be based on the corporate book. To ensure this, validation rules have been built into the MHCA tax book extract program to check that the following values agree:
Asset cost
Date placed in service
Asset life
Salvage value
If any of these values differ between the two books the assets are displayed in the reconciliation window with an exception. They are also displayed in an exception report. Users should correct the errors and restart the data preparation process.
If no current MHCA history exists, Inflation Accounting for Assets extracts the historic balances from the corporate book and applies the new Inflation Accounting for Assets functionality to build the fully revalued starting position.
These asset balances are held in an implementation set of tables pending reconciliation to their equivalent general ledger account balances. This information is made available in the Inflation Accounting: Implementation Reconciliation window and can be downloaded via Web ADI for users to work in a spreadsheet environment. The asset balances should be reconciled to the general ledger.
The extracted information can then be corrected in the Inflation Accounting: Implementation Reconciliation window or the spreadsheet. Although users can update the revalued amounts, they cannot update Oracle Assets’ corporate book values.
Once downloaded balances have been reconciled and if necessary amended, they can be uploaded via Web ADI to the Inflation Accounting for Assets implementation tables. Alternatively, if users have an existing file that meets the following criteria it may be directly loaded into the implementation tables:
conforms to the implementation table format
covers all assets that were initially extracted
has historic asset balances that match those of the corporate book
After the balances held in the implementation tables are confirmed as correct, they can be transferred to the Inflation Accounting for Assets system as the starting position.
The usual scenario, that of new users implementing Oracle Assets and Inflation Accounting for Assets from a legacy system, means that assets are created in Oracle Assets with supplied accumulated and year-to-date depreciation balances. When the implementation process builds the new Inflation Accounting for Assets revalued balances, it applies rules to determine how the supplied depreciation amounts are spread over the asset’s elapsed life, and how much of the depreciation revaluation should be treated as depreciation expense and how much should be backlog accumulated depreciation. These rules are as follows:
If an asset is added to the corporate book in the current fiscal year, the current year-to-date balance is deducted from the accumulated depreciation and the remaining balance is split linearly over all prior years.
If the asset is added in a prior year with or without a supplied depreciation balance, the full accumulated depreciation is apportioned linearly over the elapsed life of the asset.
For information on the Inflation Accounting: Implementation Reconciliation window, see Reconciling Data, Oracle Public Sector Financials (International) Implementation Guide.
As the implementation process generates the starting position for all future revaluations of assets, it is important to ensure that this starting position is correct. To assist in this process two reports are provided:
The initial data preparation stage of extracting asset information from the corporate or MHCA book requires that the information be validated. Any issues that are discovered in the validation process are shown in this report as exceptions.
Exceptions cover differences between the MHCA and corporate book values for the following:
asset cost
date placed in service
asset life
salvage value
These differences must be investigated and corrected. Once this is done, the data preparation process can be restarted.
Specific asset circumstances that do not require correction are also reported as follows:
asset types that will not be processed by the revaluation process
fully retired assets
negative assets
asset types that will only have the cost revalued by the revaluation process
non-depreciating assets that have an accumulated depreciation balance
Note: This report is not restricted to the implementation process; it can be run at any other time which might be useful to check for the listed specific asset circumstances.
This report shows details of all assets imported into Inflation Accounting for Assets. It can be run at any point during the reconciliation process, for example, before formal reconciliation is started, before export to the spreadsheet, or before final figures are transferred to Inflation Accounting for Assets as the new starting position.
Inflation Accounting for Assets includes the facility to upload, validate, and process large quantities of existing assets that have been professionally revalued.
Users cut and paste professional valuation data from an existing spreadsheet into the Oracle Web Applications Desktop Integrator (Web ADI) spreadsheet template.
Users can receive valuations in one of the following forms:
Gross Book Value
The revalued cost is listed before deduction of the revalued accumulated depreciation. This is usually provided to users for smaller value items based on a supplier catalogue.
Net Book Value
The revalued cost is listed after deduction of the revalued accumulated depreciation. Such valuations are usually provided to users by professional valuers, based on a current saleable value as a part-used asset.
Inflation Accounting for Assets requires the valuation in the form of a Gross Book Value and to this end users are able to set a gross-up flag against each asset to translate any valuations that are provided as a Net Book Value. The Mass Upload process then performs the gross-up by reference to the ratio of the elapsed life to the full life.
The completed spreadsheet template is then uploaded to Inflation Accounting for Assets for validation.
Users can include assets in the upload spreadsheet where the new gross cost is the same as the previous gross cost. If the next revaluation is an indexed revaluation, the ‘no change’ revaluation moves the calendar forward in terms of the base period from which the indexed revaluation starts.
The table below shows an example professional revaluation followed by an indexed revaluation with the impact from a ‘no change’ revaluation.
| Date | Revaluation Type | Description |
|---|---|---|
| September 2000 | Cost | 30,000 index = 100 |
| September 2001 | Professional Revaluation | 36,000 index = 110 - not used, depreciation revalued by a factor of 36000/30000, or 1.2. |
| September 2002 | Professional Revaluation | 36,000 index = 120 - not used, revaluation factor unchanged as ratio is 36000/36000, or 1.0. |
| September 2003 | Indexed Revaluation | index = 130 - previous cost of 36,000 is increased by a factor of 130/120 or 1.083, to 39,000. |
In this example, when a ‘no change’ professional revaluation is followed by an indexed revaluation, the September 2003 indexed revaluation starts from the last revaluation period index of 120 in September 2002, rather than the last changing revaluation index of 110 in September 2001.
Exception validations are performed to check that the asset is active and valid for professional revaluation. Tolerance checks ensure that the revaluation is within selected tolerance limits.
Users must view and correct all exception check failures. Any assets that cannot be corrected, for example if they were included wrongly, must be removed from the spreadsheet. Tolerance check failures can be removed or accepted.
Once the spreadsheet is fully validated and contains no exception or tolerance failures, it is transferred to the occasional revaluation process for uploading into the Inflation Accounting for Assets tables. Normal revaluation processing involves a Preview and a Run mode of operation, with the Preview mode generating a report to allow users to confirm that results are satisfactory. The transfer to the revaluation process can be requested to automatically launch the Preview mode operation.
After the transfer, users can complete the process in the Revaluation window. The revaluations are only fully updated into the system once the Revaluation process has been successfully completed in Run mode.
For information on the Mass Upload of Revalued Assets process, see Inflation Accounting for Assets Mass Upload of Asset Valuations Procedures.
For information on Web ADI, see Oracle Web Applications Desktop Integrator User’s Guide.