10 Work with Depreciation

This chapter contains these topics:

• Section 10.1, "Working with Depreciation,"

• Section 10.2, "Defining Codes for User Defined Depreciation,"

• Section 10.3, "Defining Formulas for User Defined Depreciation,"

• Section 10.4, "Defining Depreciation Rules for User Defined Depreciation,"

• Section 10.5, "Assigning Depreciation Methods to Assets,"

• Section 10.6, "Running the Compute User Defined Depreciation Program."

10.1 Working with Depreciation

In Germany, the most frequently used depreciation methods include:

• No depreciation (keine Abschreibung)

• Straight line depreciation (lineare Abschreibung)

• Declining balance with cross-over (degressive Abschreibung mit Übergang)

You can use J.D. Edwards user defined depreciation to set up German depreciation methods and calculate the resulting depreciation for your assets.

Caution:

To use German-specific depreciation methods successfully, you must be completely familiar with J.D. Edwards user defined depreciation. You must fully understand the setup procedures and information flows for user defined depreciation as defined in J.D. Edwards standard software and documentation as of the A7.3 release.

Working with depreciation for Germany consists of the following tasks:

• Defining codes for user defined depreciation

• Defining formulas for user defined depreciation

• Defining depreciation rules for user defined depreciation

• Assigning depreciation methods to assets

• Running the Compute User Defined Depreciation program

The following tasks can be used only as general reference and example.

See Also:

• About User Defined Depreciation in the JD Edwards World Fixed Assets Guide for more conceptual information about J.D. Edwards user defined depreciation,

• Setting Up User Defined Depreciation in the JD Edwards World Fixed Assets Guide to review the steps for setting up user defined depreciation.

10.2 Defining Codes for User Defined Depreciation

You must define a code for each German depreciation method you want to set up in user defined depreciation. You use the Depreciation Method user defined codes file (system 12, type DM) to define codes for user defined depreciation methods.

When you set up the Depreciation Method user defined codes file, you must do the following:

• Use alpha codes to identify user-defined depreciation methods

• Enter a 1 in the Special Handling Code field for each user-defined depreciation method

• Enter an N in the Hard Coded Y/N field for each of user-defined depreciation method

To define codes for user defined depreciation

On any User Defined Codes screen

Figure 10-1 General User Defined Codes (Depreciation) screen

Description of "Figure 10-1 General User Defined Codes (Depreciation) screen"

1. To access the user defined codes file for Depreciation Method, complete the following fields:

   • System Code

   • User Defined Codes

2. To define depreciation codes, complete the following fields:

   • Character Code

   • Description

   • Description 2

3. Access the detail area.

4. To identify the depreciation method as a user defined method, complete the following fields:

   • Special Handling Code

   • Hard Coded Y/N

Field	Explanation
System Code	A user defined code (98/SY) that identifies a J.D. Edwards system. A user defined code that identifies a J.D. Edwards system, such as Accounts Receivable, Address Book, Inventory, and so on. If an object is used by more than one system, select a common system code. Use 00 for an object that is used by General Accounting, Address Book, and Inventory. See UDC 98/SY
User Defined Codes	Identifies the file that contains user defined codes. The file is also referred to as a code type.
User Defined Code	This column contains a list of valid codes for a specific user defined code list. The number of characters that a code can contain appears in the column title.
Special Handling Code - User Def Codes	A code that indicates special processing requirements for certain user defined code values. The particular value you enter in this field is unique for each user defined code record type. The system uses the special handling code in many ways. For example, special handling codes defined for Language Preference specify if the language is double-byte or if the language does not have uppercase characters. Programming is required to activate this field. Screen-specific information If a "P" is in the second position, the system identifies that unit of measure as a potent unit of measure.

See Also:

• Setting Up User Defined Codes in the JD Edwards World Fixed Assets Guide for more information about user defined codes.

10.3 Defining Formulas for User Defined Depreciation

Navigation

From Fixed Assets (G12), enter 27

From Advanced Operations (G1231), choose Set Up UDD Depreciation

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

You can define or revise specific depreciation formulas for user defined depreciation methods. You assign the depreciation formulas to the life years you specify for the depreciation method. 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 file, Item Master file, Date Pattern file, 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.

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 J.D. Edwards base 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.

Define the following formulas for German depreciation:

Formula	Explanation
Salvage Value	The Salvage Value is the amount you expect to recover when you dispose of the asset. The salvage value is a key element in many depreciation methods. Define the Salvage Value formula as a percentage of the asset's acquisition cost.
Base/Limit	The Base/Limit is the total amount that can be depreciated over the life of an asset. Define the Base/Limit formula as the cost of the asset less its salvage value.
Assets acquired during the first half of year	Define a formula for assets that are placed in service in the first half of the company's fiscal year. The initial depreciation for the assets is computed for the entire year. For example, the company's fiscal year is January through December and the asset is placed in service in April. The system computes the initial depreciation for the asset based on twelve months (January through December), rather than eight (April through December).
Assets acquired in the second half of year	Define a formula for assets that are placed in service in the second half of the company's fiscal year. The initial depreciation is computed for a half year. For example, the company's fiscal year is January through December and the asset is placed in service in November. The system computes the initial depreciation for the asset based on six months (July through December), rather than the entire year.
Assets during second and subsequent years	Define a formula to compute the depreciation for all assets that are in service during the second and subsequent years.

To define formulas for user defined depreciation

On Depreciation Formula Revision

Figure 10-2 Depreciation Formula Revision screen

Description of "Figure 10-2 Depreciation Formula Revision screen"

1. To set up or review 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 define or revise the formula, complete the following fields:

   • Description

   • Formula

   • Multiplier/Constant

Field	Explanation
Formula - Inquiry Column	A calculation that the system uses to input an amount or quantity in this column. You can use a single predefined value or multiple predefined values in conjunction with mathematical operators to enter a formula. Valid mathematical operators are: + Add - Subtract * Multiply / Divide ( ) Left and right parentheses for nesting For example, you can enter the following formula to have the system calculate on-time percentages: 20/(20+21+22) The formula above equals on-time percentages because: 20 is the value for on-time amounts 21 is the value for early amounts 22 is the value for late amounts
Depreciation Formula Amount	A percentage or amount that can be incorporated into a formula as an element to derive depreciation.

See Also:

• Section B, "Depreciation Examples" to review examples of the depreciation formulas,

• Formula Elements in the JD Edwards World Fixed Assets Guide to review a comprehensive list of the elements that you can use to define formulas.

10.4 Defining Depreciation Rules for User Defined Depreciation

Navigation

From Fixed Assets (G12), enter 27

From Advanced Operations (G1231), choose Set Up UDD Depreciation

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

You must define the rules that you want the system to use when it calculates user defined depreciation for an asset. Depreciation rules consist of the following elements:

• Reference information

• Rule conventions

• Life year rules

• Formulas

10.4.1 Reference Information

You use reference information to tie a specific depreciation rule to an asset. The system uses the values that you specify to reference the specific depreciation method in which the rule is to be used. Reference information includes:

• 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

10.4.2 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 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.

10.4.3 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.

10.4.4 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

To define depreciation rules for German depreciation methods

On Depreciation Rule Revisions

Figure 10-3 Depreciation Rule Revisions screen

Description of "Figure 10-3 Depreciation Rule Revisions screen"

1. To reference the depreciation rule, complete the following fields:

   • Depreciation Method

   • Life (Periods)

   • Initial Term Apportionment

   • Compute Direction

   • In Service From/Thru

   • Effective From/Thru

   • Pattern Reference

   The Depreciation Method is the code identifier you defined on user defined codes file 12/48.

2. 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

3. To define the life year rules for the depreciation rule, complete the following fields:

   • Life Year-From

   • Life Year-Thru

   • In Service Month

   • Annual Multiplier

   • Period Pattern

4. 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

   Use the formulas you defined on the Depreciation Formula Revisions screen as applicable.

5. Access the detail area.

6. Complete any of the following optional fields for additional formula specifications:

   • Depreciation Formula-Base

   • Depreciation Formula-Limit

   • Depreciation Formula-Salvage Value

Field	Explanation
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.
Life Months	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.
Depreciation Information	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 file 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.
Computation Method - ITD or Rem	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. Screen-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 file 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. Screen-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 file 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. Screen-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.
Fiscal Date Pattern	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. Screen-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 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 Convention	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 Year Spread Convention	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 Convention	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/% Convention	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 Depreciation Account 1; amount from Rule 2 to Accumulated Depreciation Account 2 7 Amount from Rule 1 to Accumulated Depreciation Account 1 plus Depreciation Expense Account 1 equals Rule 1 amount; amount from Rule 2 to Accumulated Depreciation 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 Convention	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)
Over/Under Allowed	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.
Negative Allowed	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.
Placed In Service Period	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.
Spread Pattern Reference	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.

See Also:

• Setting Up Depreciation Rules in the JD Edwards World Fixed Assets Guide for more information about how the system uses depreciation rules.

10.5 Assigning Depreciation Methods to Assets

You must assign depreciation methods to your assets to calculate depreciation. You do this when you create the master records for your assets.

When you create asset master records, the system automatically assigns depreciation information to each asset. You define the default values that the system assigns to new assets when you set up the constants and depreciation default coding for your system.

After you set up asset master records, you can review both master information and balance information on the Depreciation Information screen. You might want to review the Depreciation Information screen to verify that the depreciation default values that you have set up for the system are correct for individual assets. For example, you might want to verify the following default information:

• Master record information, such as the business unit, object, and subsidiary accounts that the system uses to create journal entries

• All the ledgers assigned to the asset, such as budget and depreciation ledgers

• Depreciation methods for the asset

You can review default depreciation information as you enter master records for individual assets or from the Fixed Assets menu. Access depreciation information when you want to:

• View depreciation information for an asset for any fiscal year

• Override an asset's default depreciation information for current or future fiscal years

• Add new ledger types and depreciation methods to individual assets

See Also:

• Creating an Asset Master Record in the JD Edwards World Fixed Assets Guide to review the steps for creating an asset master record,

• Verifying Depreciation Information in the JD Edwards World Fixed Assets Guide to review the steps for accessing and revising the depreciation information for assets.

10.6 Running the Compute User Defined Depreciation Program

Navigation

From Fixed Assets (G12), enter 27

From Advanced Operations (G1231), choose Compute UDD Depreciation

From Set Up User Defined Depreciation (G1233), choose Compute User Defined Deprec.

Use the Computer User Defined Depreciation program to calculate depreciation for assets to which you assign user defined depreciation methods. The program refers to the special handling code in the user defined codes for depreciation method to determine whether or not the deprecation method is user defined.

When you run the Compute User Defined Depreciation program, the program calculates and stores the annual depreciation amount for each asset in the Item Balances file (F1202). The program refers to the Spread Pattern file that relates to the depreciation rule and applies the Year-to-Date Percentage to the annual depreciation amount. The resulting calculation is the depreciation amount for the current period.

When you select Compute User Defined Depreciation, the system displays a DREAM Writer versions list. The DREAM Writer versions list includes DEMO versions that you can run or copy and modify to suit your needs. When you run a version, the system displays Processing Options Revisions before submitting the job for processing.

When you run Compute User Defined Depreciation in final mode, the system creates fixed asset and general ledger journal entries. The system automatically posts the fixed asset journal entries and then submits the general ledger journal entries for posting.

You can approve and post the general ledger journal entries, or you can set up your system to automatically post the entries when you run the depreciation program. For the system to automatically post depreciation journal entries to the general ledger, you must:

• Set Management Approval of Input to No (N) in General Accounting Constants

• Indicate a post version in the processing options for the Compute User Defined Depreciation program

See Also:

• About User Defined Depreciation in the JD Edwards World Fixed Assets Guide,

• Calculating User Defined Depreciation in the JD Edwards World Fixed Assets Guide.