24 Set Up User Defined Depreciation

You can set up user defined depreciation methods to define as many specific depreciation methods as your company needs without custom programming. Set up user defined depreciation when you need specific depreciation algorithms other than the standard depreciation rules that are included in the Fixed Assets system. For example, you can copy an existing straight-line rule and insert the appropriate life period information to create a depreciation method for your specific needs.

This chapter includes the following topics:

• Section 24.1, "Setting Up User Defined Depreciation,"

• Section 24.2, "Setting Up Depreciation Rules,"

• Section 24.3, "Setting Up Depreciation Formulas,"

• Section 24.4, "Setting Up Depreciation Spread Patterns."

24.1 Setting Up User Defined Depreciation

Navigation

From Fixed Assets (G12), enter 27

From Advanced Operations (G1231), choose Set Up Depreciation

From Set Up User Defined Depreciation (G1232), choose Depreciation Rule Revisions

The system computes depreciation using depreciation rules. When you set up user defined depreciation methods, you must define the depreciation rules, formulas, and date spreads that you want the system to use to calculate depreciation for your fixed assets.

The system stores both standard and user defined depreciation methods in the User Defined Code table 12/DM. When you run the program to compute user defined depreciation, the system distinguishes user defined methods from standard methods by a special handling code. User Defined Depreciation Methods must have a '1' in the first position of the Special Handling Code in the UDC/12/DM table.

24.2 Setting Up Depreciation Rules

Depreciation rules control how the system computes depreciation for an asset. You must specify the rules that you want the system to incorporate when making calculations for user defined depreciation methods. When you set up rules for a depreciation method, you define a hierarchy of conventions that you want the system to apply to the cost of an asset.

The Fixed Assets system includes the base rules for computing standard depreciation methods in user defined depreciation. You cannot change the standard rules that are included in the Fixed Assets system, but you can copy and modify these rules to define depreciation methods specific to your company. For example, if you want to set up a depreciation rule for straight-line depreciation with a life period combination that is not included in the Fixed Assets system, you can use Depreciation Rule Revisions to copy an existing straight-line rule and change the life periods.

User defined depreciation rules must have alphabetic identifiers to distinguish them from standard depreciation rules. When you set up depreciation rules, the system stores the information in the Depreciation Rule Header table (F12851) and the Annual Depreciation Rule table (F12852).

At the highest level, you can set up depreciation rules to apply to the entire period of time over which you want cost of an asset to be apportioned. Or, you can define rules for the period in which the asset was placed in service.

A depreciation rule consists of four parts:

Depreciation Rule Part	Description
Header	Information that references the depreciation method in which the rule is to be used, such as: The code that identifies the method Special characteristics of the rule Period over which the asset cost is to be apportioned Placed in service date for the asset Date through which the method is effective You use the information in the header to tie a specific depreciation rule to an asset.
Rule conventions	Rule conventions dictate how the system calculates depreciation based on the life year rules and formulas you specify for the rule. These conventions apply to the entire apportionment period referenced by the rule. You can set up rule conventions to: Override of the business unit destination of the depreciation expense. Spread the first and last year of cost apportionment. For example, you can designate a rule to spread depreciation throughout the year, or spread the depreciation proportionate beginning with the depreciation start or end date. Allow the utilization of a second annual rule. Use the asset's life periods or the fiscal year as the beginning reference point in determining the current life year of an asset. Depreciate more cost than exists for an asset. Allow negative depreciation amounts to be computed in the formula during the life of an asset.
Life year rules	The basic equation for computing depreciation for a life year consists of a multiplier that is applied to a cost or basis. The resulting amount is subject to a minimum (base) and a maximum (limit). The basis amount that is multiplied might be subject to an overall floor or salvage value. The same rule might apply to multiple life-years, or it might apply to a single life year of a cost. You can define a rule for any asset life year. You can also define a separate rule for the disposal year of an asset.
Formulas	The formulas that are used by the life year rules can be applied to any element in the depreciation equation, such as: Multiplier Depreciable basis Base Limit Salvage value

When you set up user defined depreciation rules, you must address each part of the rule.

Setting up user defined depreciation rules includes:

• Referencing the rule (by revising header information on Depreciation Rules Revision)

• Specifying conventions for the rule

• Setting up the life year rules

• Defining formulas that apply to the depreciation equation

To revise depreciation rules

Navigation

From Fixed Assets (G12), choose Hidden Selection 27

From Fixed Assets (G1231), choose Setup User Defined Depreciation

From Setup User Defined Depreciation (G1232), choose Depreciation Rule Revisions

On Depreciation Rule Revisions

Figure 24-1 Depreciation Rule Revisions screen

Description of "Figure 24-1 Depreciation Rule Revisions screen"

1. Complete the following fields:

   • Life (Periods)

   • Initial Term Apportionment

   • Compute Direction

   • In Service From/Thru (Date From/Date Thru)

   • Effective From/Thru

   • Pattern Reference

2. Enter the appropriate code in the following field:

   • Depreciation Method

To revised user defined codes

Navigation

From General systems (G00), choose General User Defined Codes

On General User Defined Codes

Figure 24-2 General User Defined Codes screen

Description of "Figure 24-2 General User Defined Codes screen"

1. Enter an alphabetic, two-character code in the following field:

   • User Defined Codes

2. Choose More (F24).

   Figure 24-3 General User Defined Codes (Detail) screen

   
   Description of "Figure 24-3 General User Defined Codes (Detail) screen"
   
   

3. To identify the depreciation method as a user defined method, complete the following field:

   • Special Handling Code

4. To return to Depreciation Rule Revisions, choose Exit Program.

5. On Depreciation Rule Revisions, complete the following field with the code for the depreciation method to which you want to add the rule:

   • Depreciation Method

To specify conventions for the rule

Navigation

From Fixed Assets (G12), choose Hidden Selection 27

From Fixed Assets (G1231), choose Setup User Defined Depreciation

From Setup User Defined Depreciation (G1232), choose Depreciation Rule Revisions

On Depreciation Rule Revisions

To define the conventions of the depreciation rule, complete any of the following fields:

• Depreciation Expense Business Unit

• First Year Spread

• Last Year Spread

• Disposal Year

• Secondary Account/%

• Life Year Reference

• Allow Over Depreciation

• Allow Negative Depreciation

To set up life year rules

On Depreciation Rule Revisions

1. Complete the following fields:

   • Life Year-From (Asset Life Year-Start)

   • Life Year-Thru (Asset Life Year-Through)

   • In Service Month (IS Mo)

   • Annual Multiplier

2. Enter 1 (Period Pattern) in the following field:

   • OP (Option)

   Figure 24-4 Depreciation Spread Patterns screen

   
   Description of "Figure 24-4 Depreciation Spread Patterns screen"
   
   

3. On Depreciation Spread Patterns, to add a new spread pattern, complete the following fields:

   • Budget Pattern Code (Per Pat)

   • Desc

   • Period 01-14

4. Choose Exit Program.

5. On Depreciation Rule Revisions, to attach the spread pattern to the rule, enter 1 (Period Pattern) in the following field:

   • OP (Option)

6. On Depreciation Spread Patterns, complete the following field:

   • Budget Pattern Code (Per Pat)

To define formulas for the rule

On Depreciation Rule Revisions

1. Choose Formula.

   Figure 24-5 Depreciation Rule Revisions (Define Formulas) screen

   
   Description of "Figure 24-5 Depreciation Rule Revisions (Define Formulas) screen"
   
   

2. On Depreciation Formula Revisions, to define a new formula, complete the following fields:

   • Formula ID

   • Description

   • Formula

   • Multiplier/Constant

To select formulas for depreciation elements

On Depreciation Rule Revisions

1. Complete the following fields with the codes for the formulas that you want the system to use for each element of the depreciation equation:

   • Depreciation Formula-Multiplier

   • Depreciation Formula-Basis

   • Secondary Percentage Continuation

2. Choose Details.

   Figure 24-6 Depreciation Rule Revisions (Select Formulas) screen

   
   Description of "Figure 24-6 Depreciation Rule Revisions (Select Formulas) screen"
   
   

3. For additional formula specifications, complete any of the following optional fields:

   • Depreciation Formula-Base

   • Depreciation Formula-Limit

   • Depreciation Formula-Salvage Value

Field	Explanation
Life(Periods)	The life of an asset in months or periods. The system uses months or periods only to express the life of an asset. For example, if your company uses a 12-month calendar, then a five-year ACRS asset has a 60-month life. If your company uses a 13-month calendar, then a five-year ACRS asset has a 65-month life, and so on. You must specify a life month value for all user defined depreciation methods, and for all standard depreciation methods, except the standard methods 00, 06, 09, 11, and 15.
Initial Term Apport	A code for additional depreciation information. This code is used for Investment Tax Credit (ITC) and averaging conventions. The system validates the code you enter in this field against user defined code table 12/AC. Valid codes are: 0 – No ITC Taken 1 – Three Year Method (3 1/3%) 2 – Five Year Method (6 2/3%) 3 – Seven Year Method (10%) 4 – ACRS Method with Basis Reduction (10% ITC) 5 – ACRS Method without Basis Reduction (2% ITC or No ITC) A – Actual Date of Depreciation Start Period M – Mid-Month Convention Q – Mid-Quarter Convention Y – Mid-Year Convention P – Middle of Period F – First-half/Second-half W – Whole Year N – First Day of Next Period R – First Day of Next Year S – Actual Start Date for Primary Rule/First Day of Period for Secondary Rule Note: Numeric codes apply to standard depreciation methods only. To determine the date for F (First-half/Second-half), use the following guidelines: If the asset was placed in service in the first half of the year then the adjusted depreciation start date is the first day of the year. If the asset was placed in service in the second half of the year then the adjusted depreciation start date is the first day of the succeeding year. The first half of the year expires at the close of the last day of the calendar month which is closest to the middle of the tax year. The second half of the year begins the day after the expiration of the first half of the tax year.
Compute Direction	A code that indicates the method of computation that the system uses to calculate depreciation based on the depreciation method you specify. Valid codes are: C – Current year to date. Calculates only the current year's depreciation. I – Inception to date. Recalculates the entire depreciation amount from the start date through the current year. Prior-year depreciation is then subtracted to determine current year depreciation. This method results in a one-time current period correction for any errors in prior period depreciation. F – Inception to date. Calculates inception to date for the first rule (if there are two rules) and uses a C for the second rule. P – Current period. Calculates depreciation for the current period and then extrapolates the annual amount based on the cumulative percent from the period pattern and year-to-date posting. Any depreciation calculated for the current period is subtracted. R – Remaining months. Depreciates the net book value as of the beginning of the current tax year over the remaining life of the asset. This results in the amortization of prior period calculation errors over the remaining life of the asset.
Date From	The beginning date for which the transaction or code is applicable. Form-specific information The date the asset is placed in service or the modified depreciation start date. The system validates this date against the company date patterns. If you leave this field blank, the system uses a default value of 01/01/00 (January 01, 1900). If only the date differentiates two or more depreciation rules, the system will not allow overlapping dates.
Date Thru	The ending date for which the transaction or code is applicable.
Date - Beginning Effective	The date on which an address, item, transaction, or table becomes active or the date from which you want transactions to display. The system uses this field depending on the program. For example, the date you enter in this field might indicate when a change of address becomes effective, or it could be a lease effective date, a price or cost effective date, a currency effective date, a tax rate effective date, and so on. Form-specific information The date from which a depreciation rule is effective. The system validates this date against the company date patterns. If you leave this field blank, the system uses a default value of 01/01/00 (January 01, 1900). If only the dates differentiate two or more depreciation rules, the system will not allow overlapping dates.
Date - Ending Effective	The date on which the item, transaction, or table becomes inactive or through which you want transactions to display. This field is used generically throughout the system. It could be a lease effective date, a price or cost effective date, a currency effective date, a tax rate effective date, or whatever is appropriate. Form-specific information The date through which a depreciation rule is effective. The system validates this date against the company date patterns. If you leave this field blank, the system uses a default value of 01/01/00 (January 01, 1900). If only the dates differentiate two or more depreciation rules, the system will not allow overlapping dates.
Pattern Ref	A code that identifies date patterns. You can use one of 15 codes. You must set up special codes (letters A through N) for 4-4-5, 13 period accounting, or any other date pattern unique to your environment. An R, the default, identifies a regular calendar pattern. Form-specific information Use this field to reference a date pattern that is specific to the initial term for asset depreciated under the rule. This is particularly useful if the date patterns your company uses now are different from previous years due to mergers or short years. The system refers to this pattern in order to adjust the depreciation start date.
Depreciation Method	The user defined code (system 12, type DM) that indicates the method of depreciation for the specified book. In addition to any user defined depreciation methods you set up for your company, the following standard depreciation methods are available in the Fixed Assets system: 00 – No depreciation method used 01 – Straight Line Depreciation 02 – Sum of the Year's Digits 03 – 125% Declining Balance to Cross-Over 04 – 150% Declining Balance to Cross-Over 05 – Double Declining Balance to Cross-Over 06 – Fixed % on Declining Balance 07 – ACRS Standard Depreciation 08 – ACRS Optional Depreciation 09 – Units of Production Depreciation 10 – MACRS Luxury Cars - Domestic 11 – Fixed % Luxury Cars - Foreign 12 – MACRS Standard Depreciation 13 – ACRS Alternative Depreciation 14 – ACRS Alternate Real Property 15 – Fixed % of Cost 16 – Fixed % on Declining Balance to Cross-Over 17 – AMT Luxury Auto 18 – ACE Luxury Auto Note: Any additional depreciation methods you create for your organization must have an alpha code.
Depr Expense Business Unit	A code that allows an override of the destination of the depreciation expense. Valid codes are: blank – No Override 1 – Responsible Business Unit 2 – Location Business Unit 3 – Work Center Business Unit
1st Year Spread	A code that designates how you want the system to apportion the first year of depreciation for an asset. Valid codes are: Blank – Modified Depreciation Start Date 1 – Entire Year 2 – Actual Depreciation Start Date 3 – Placed in Service Period
Last Yr Spread	A code that designates how you want the system to apportion the last year of depreciation for an asset. Valid codes are: blank – Modified depreciation end date 1 – Entire year
Disposal Year	A code that designates how you want the system to apportion depreciation when you dispose of the asset. Valid codes are: blank – To End of Disposal Period A – Actual Disposal Date Y – Mid-Year Q – Mid-Quarter M – Mid-Month P – Middle of Period F – First-Half / Second-Half L – Last Day of Previous Period I – Inverse of Initial Term Apportionment N – None
Secondary Acct/%	A code that designates how the system uses the amount calculated by the Secondary Account/Percent rule when determining the annual depreciation amount. Valid codes are: blank – No secondary percentage 1 – Greater of amounts calculated by Rule 1 or Rule 2 2 – Lesser of amounts calculated by Rule 1 or Rule 2 6 – Amount from Rule 1 to Accumulated Deprecation Account 1; amount from Rule 2 to Accumulated Deprecation Account 2 7 – Amount from Rule 1 to Accumulated Deprecation Account 1 plus Depreciation Expense Account 1 equals Rule 1 amount; amount from Rule 2 to Accumulated Deprecation Account 2 plus Depreciation Expense Account 2 equals Rule 2 amount 8 – Two Amounts - Two A/D Accounts and Three D/E Accounts The system uses this field in conjunction with the Secondary Percent Continuation field.
Life Year Reference	A code that designates the beginning reference point from which you want the system to determine the current life year of an asset. Valid codes are: blank – 1st day of depreciation start year 1 – Depreciation start date (modified)
Allow Over Depreciation	A code that indicates whether you want the system to allow over depreciation for an asset. Use this field when you want the system to allow depreciation in excess of the basis, or when you want to allow depreciation beyond the period you define as the life of the asset, as in the ACRS Luxury Autos depreciation method. Valid values are: blank – Over depreciation NOT allowed during asset life, take remaining basis at end of asset life 1 – Accumulated depreciation may EXCEED adjusted basis during asset life, take remaining basis at end of asset life 2 – Over depreciation NOT allowed during asset life, allow depreciation beyond asset life 3 – Accumulated depreciation may EXCEED adjusted basis during and beyond asset life The default for this field is blank. The system uses this field in conjunction with the Allow Negative Depreciation field.
Allow Negative Depreciation	A code that indicates whether you want to allow depreciation formulas to calculate negative amounts. Valid codes are: N – Negative depreciation not allowed Y – Accumulated depreciation may be less than adjusted basis You can enter a 1 for yes (Y) or a 2 for no (N). The default value is N.
Asset Life Year - Start	The first asset life year to which the rule pertains. You must set up detail annual rules for a depreciation rule, beginning with year 1 and extending through every year in the life of the asset. The system does not allow "gaps" between years. You can set up the detail annual rules beyond the life of the asset. A single record may represent several contiguous years, but the system does not allow duplicate years. Valid values are 1 through 998, and 999. Use 999 only to set up a specific rule for the disposal year of an asset.
Asset Life Year - Through	The last year in the life of an asset to which the rule pertains. You can set up the detail annual rules beyond the life of the asset. Each rule must have a rule for contiguous years beginning with 1. A single record can represent several contiguous years, but the system does not allow duplicate years.
IS Mo	This field refers to the month the asset is placed in service. You can specify rules by inclusive ranges. When you use the value of blank, the system continues to use the annual rule for the last specified placed in service month until it finds a higher placed in service month value. The system uses the values you enter in this field as follows: First, the system searches for an exact match. (For example, if an asset is placed in service in month 01, the system looks for a Placed In Service Month value of 01 for that year.) If an exact match does not exist, the system searches for a value of blank. If a value of blank does not exist, the system continues to use the annual rule for the last specified placed in service month for a range of months until it finds the next highest month you specify. For example, if you set up annual rules for the Placed In Service Months of 01, 03, 06, and 09, the system uses the rule you specify for 01 during the first and second months, the rule you specify for 03 during the third, fourth, and fifth months, the rule you specify for 06 during the sixth, seventh, and eighth months, and the rule you specify for 09 for the remaining months. Valid values are blank, 01, 02, 03, 04, 05, 06, 07, 08, 09, 10, 11, and 12.
Annual Multiplier	A percentage that you can use as an element within a formula, or by itself. The system applies this percentage to the basis of an asset to derive depreciation. If no basis is defined for the asset, then the system applies this percentage to the cost. Enter a value in this field as a decimal. For example, enter 10% as .10 and 150% as 1.5.
Per Pat	The code for a specific depreciation spread pattern. A pattern determines how the annual depreciation amount is to be apportioned to periods within a year. You can designate spread patterns for individual years, or for a group of years.
Secondary % Continuation	Use this code to indicate whether an annual depreciation rule is a primary or secondary rule.

24.2.1 What You Should Know About

Topic	Description
Standard depreciation rules	The User Defined Depreciation program includes a basic rule set that represents all of the rules used by the 18 standard depreciation methods. You can identify the standard depreciation methods and base depreciation rules by numeric identifiers. All numeric methods and formulas are reserved for the use of JD Edwards World. Numeric rules can be refreshed from the JDFDATA environment, which will be periodically updated for changes to the depreciation rules. You can inquire on the numeric rules and methods and use them as the basis for creating modified user defined depreciation rules with alpha identifiers.
Locating an existing depreciation method	Use function keys to help you locate the depreciation method you are looking for. For example, if you enter values in as many of the fields as you can to identify a depreciation method and press enter, you can use function keys to skip to the first depreciation method that most closely matches your criteria. Then, use function keys to scroll through all existing methods with similar values. This is particularly helpful when you have numerous depreciation methods. After you locate the depreciation methods that you are looking for, you can also use a function key to skip directly to the rules portion of the screen.
Protecting user defined depreciation methods	After you set up the user defined depreciation methods you want to use, use the Edit Disable field to protect them from further revision.

24.2.2 Processing Options

See Section 70.2, "Depreciation Rule Revisions (P12851)."

24.3 Setting Up Depreciation Formulas

You can define or revise depreciation formulas. You can then attach the formulas to the elements of the depreciation equation in a life year rule. Use the four basic mathematical functions (+ - * /) and parentheses for nesting amounts or quantities to construct depreciation formulas in algebraic format.

The Fixed Assets system includes codes that you can use to represent the elements that the system uses to retrieve the related amounts or quantities from the Item Balance table, Item Master table, Date Pattern table, and so on. For example, you can define a depreciation method that is based on a formula that you create to subtract salvage value from cost.

A comprehensive list of the elements that you can use to define formulas to include in depreciation rules appears in Appendix A.

You can access the Depreciation Formula Revision screen directly from the menu, or you can access the screen from Depreciation Rule Revision. For example, if you are revising depreciation rules, and you want to update a formula associated with the rule, you can access Depreciation Formula Revision to review and revise formulas you have previously defined without exiting from the Depreciation Rule Revision program.

Note:

User defined depreciation formulas must have alphabetic identifiers to distinguish them from standard depreciation formulas. You can modify only the alpha formulas, but you can use the numeric formulas as a starting point to create your own formulas with alphabetic identifiers.

To set up depreciation formulas

On Depreciation Formula Revision

Figure 24-7 Depreciation Formula Revision screen

Description of "Figure 24-7 Depreciation Formula Revision screen"

1. To set up or locate an existing formula, complete the following field:

   • Formula ID

   Choose the field sensitive help for Formula ID to review a list of valid formulas or to search for a specific formula by code or description.

2. To revise or define the formula, complete the following fields:

   • Description

   • Formula

   • Multiplier/Constant

Field	Explanation
Formula	The system uses the formula you enter in this field to calculate an amount for an associated formula ID. You can attach the formulas you define on Formula Revisions to the Depreciation Rule Revisions screen. You can define the following depreciation formulas: Multiplier Basis Base Limit Salvage value Formulas can include a combination of formula elements listed on the Depreciation Formula Revisions screen, the four basic mathematical functions, and parentheses for nesting amounts or quantities. Use the following valid symbols for these basic mathematical functions: + – Addition - – Subtraction * – Multiplication / – Division ( ) – Left and right parentheses
Multiplier/Constant	A percentage or amount that can be incorporated into a formula as an element to derive depreciation.

24.3.1 Processing Options

See Section 70.3, "Depreciation Formula Revisions (P12853)."

24.4 Setting Up Depreciation Spread Patterns

When you run depreciation, the system calculates an annual depreciation amount. Then, the system calculates depreciation for a particular period based on a percentage. You set up period pattern spread rules to specify how you want to recognize the annual deprecation amount within a year. If you do not set up a spread pattern for your depreciation rule, the system spreads the annual depreciation amount equally among the normal number of periods that you set up for your organization.

You can enter spread amounts for periods 01 through 14. The total of the spread percentages that you enter must sum to 100 before the system will allow the pattern to be added or an existing pattern changed.

The system stores depreciation spread patterns in the Depreciation Spread Pattern table (F12854).

To set up depreciation spread patterns

On Depreciation Spread Patterns

Figure 24-8 Depreciation Spread Patterns (Set Up) screen

Description of "Figure 24-8 Depreciation Spread Patterns (Set Up) screen"

1. To set up or locate a depreciation pattern code, complete the following field:

   • Budget Pattern Code

2. To define or revise a depreciation pattern code, complete any of the following fields:

   • Period 01-14

Field

Explanation

Period 01

Enter the percentage of depreciation you want to record for the asset in the first period. You can enter spread percentages as: Whole numbers (such as 20 for 20%) Whole numbers with a decimal, where the decimal is a fraction of the percentage (such as 50.5 for 50 1/2%) Zero or blank, for no percentage You can enter spread percentages for up to 14 periods. The total of the spread percentages must sum to 100. Note: You set up the default periods for the fiscal year on Date Pattern Revisions for company 00000.