Calculating Depreciation When Salvage Value Exceeds Net Book Value (NBV)
There are instances when the residual value (salvage value) of an asset may increase to an amount equal to or greater than the asset's carrying amount (NBV.) If that situation arises, PeopleSoft provides the following treatments for depreciation calculation, depending upon statutory requirements:
Stop depreciation calculation when salvage value exceeds NBV.
Allow negative depreciation when salvage value exceeds NBV.
In compliance with International Accounting Standards (IAS) and Generally Accepted Accounting Principles (GAAP), PeopleSoft provides the option to stop the depreciation calculation in the event the salvage value of an asset exceeds that of its NBV.
See Enabling Options to Stop Negative Depreciation.
Stop Depreciation Example
The following table shows data that is used in the depreciation example that follows it:
|
Attributes |
Data |
|---|---|
|
Transaction Date |
January 1, 2006 |
|
Accounting Date |
January 1, 2006 |
|
In Service Date |
January 1, 2006 |
|
Calculation Type |
Life to Date |
|
Convention |
Actual Month |
|
Method |
Straight Line |
|
Asset Cost |
75,000.00 |
|
Salvage Value (Increased from 0 to 50,000 on January 1, 2008) |
50,000.00 |
|
Accumulated Depreciation (24 months in service) |
30,000.00 |
|
Net Book Value at January 1, 2008 |
45,000.00 |
|
Asset Useful Life |
60 months |
Depreciation Result - Stop Depreciation
The following table shows the result of the depreciation calculation when the Stop Depr option is selected:
|
Year |
Depreciation Calculation |
Depreciation Expense |
|---|---|---|
|
January 1 through December 31, 2006 |
75,000 x (12/60 months) |
15,000.00 |
|
January 1 through December 31, 2007 |
60,000 x (12/48 months) |
15,000.00 |
|
January 1 through December 31, 2008 |
Depreciation stopped |
0 |
|
January 1 through December 31, 2009 |
Depreciation stopped |
0 |
|
January 1 through December 31, 2010 |
Depreciation stopped |
0 |
Stop Depreciation Example with Additional Adjustment of Salvage Value
The following table shows data that is used in the depreciation example that follows it:
|
Attributes |
Data |
|---|---|
|
Transaction Date |
January 1, 2006 |
|
Accounting Date |
January 1, 2006 |
|
In Service Date |
January 1, 2006 |
|
Calculation Type |
Life to Date |
|
Convention |
Actual Month |
|
Method |
Straight Line |
|
Asset Cost |
75,000.00 |
|
Salvage Value (Increased from 0 to 50,000 at January 1, 2008) |
50,000.00 |
|
Accumulated Depreciation (24 months in service) |
30,000.00 |
|
Net Book Value at January 1, 2008 |
45,000.00 |
|
New Salvage Value - (Reduced to zero at January 1, 2009) |
0 |
|
Asset Useful Life |
60 months |
Depreciation Result - Stop Depreciation with Additional Adjustment of Salvage Value
The following table shows the result of the depreciation calculation when the Stop Depr option is selected and there is an additional adjustment of salvage value:
|
Year |
Depreciation Calculation |
Depreciation Expense |
|---|---|---|
|
January 1 through December 31, 2006 |
75,000 x (12/60 months) |
15,000.00 |
|
January 1 through December 31, 2007 |
60,000 x (12/48 months) |
15,000.00 |
|
January 1 through December 31, 2008 |
Depreciation stopped |
0 |
|
January 1 through December 31, 2009 (salvage value reduced to zero at January 1, 2009) |
(NBV - Salvage Value = 45,000) (45,000 - 0 = 45,000) 45,000 x (12/24 months) |
22,500.00 |
|
January 1 through December 31, 2010 |
22,500 x (12/12 months) |
22,500.00 |
The alternate approach to handling an asset when the NBV becomes less than the salvage value is to allow the system to generate negative depreciation until the NBV equals the salvage value at the end of the asset's useful life. To use this approach, simply do not select the Stop Depr when NBV < Salvage options.
Allow Negative Depreciation
The following table shows data that is used in the depreciation example that follows it:
|
Attributes |
Data |
|---|---|
|
Transaction Date |
January 1, 2006 |
|
Accounting Date |
January 1, 2006 |
|
In Service Date |
January 1, 2006 |
|
Calculation Type |
Life to Date |
|
Convention |
Actual Month |
|
Method |
Straight Line |
|
Asset Cost |
75,000.00 |
|
Salvage Value (Increased from 0 to 50,000 at January 1, 2008) |
50,000.00 |
|
Accumulated Depreciation (24 months in service) |
30,000.00 |
|
Net Book Value at January 1, 2008 |
45,000.00 |
|
Asset Useful Life |
60 months |
Depreciation Result - Allow Negative Depreciation
The following table shows the result of the depreciation calculation when the Stop Depr option is not selected:
|
Year |
Depreciation Calculation |
Depreciation Expense |
|---|---|---|
|
January 1 through December 31, 2006 |
75,000 x (12/60 months) |
15,000.00 |
|
January 1 through December 31, 2007 |
60,000 x (12/48 months) |
15,000.00 |
|
January 1 through December 31, 2008 (Salvage Value increase on January 1, 2008) |
(NBV - Salvage Value) x (12/36 months) (45,000 - 50,000) x (12/36 months) |
- 1,666.67 |
|
January 1 through December 31, 2009 |
(NBV - Salvage Value) x (12/24 months) (46,666.67 - 50,000) x (12/24 months) |
- 1,666.67 |
|
January 1 through December 31, 2010 |
(NBV - Salvage Value) x (12/12 months) (48,333.33 - 50,000) x (12/12 months) |
- 1,666.67 |
Allow Negative Depreciation with Additional Adjustment of Salvage Value
The following table shows data that is used in the depreciation example that follows it:
|
Attributes |
Data |
|---|---|
|
Transaction Date |
January 1, 2006 |
|
Accounting Date |
January 1, 2006 |
|
In Service Date |
January 1, 2006 |
|
Calculation Type |
Life to Date |
|
Convention |
Actual Month |
|
Method |
Straight Line |
|
Asset Cost |
75,000.00 |
|
Salvage Value (Increased from 0 to 50,000 at January 1, 2008) |
50,000.00 |
|
Accumulated Depreciation (24 months in service) |
30,000.00 |
|
Net Book Value at January 1, 2008 |
45,000.00 |
|
New Salvage Value - (Reduced to zero at January 1, 2009) |
0 |
|
Asset Useful Life |
60 months |
Depreciation Result - Allow Negative Depreciation with Additional Adjustment to Salvage Value
The following table shows the result of the depreciation calculation when the Stop Depr option is not selected and there is an additional adjustment to salvage value:
|
Year |
Depreciation Calculation |
Depreciation Expense |
|---|---|---|
|
January 1 through December 31, 2006 |
75,000 x (12/60 months) |
15,000.00 |
|
January 1 through December 31, 2007 |
60,000 x (12/48 months) |
15,000.00 |
|
January 1 through December 31, 2008 (Salvage value increase on January 1, 2008) |
(NBV - Salvage Value) x (12/36 months) (45,000 - 50,000) x (12/36 months) |
- 1,666.67 |
|
January 1 through December 31, 2009 (Salvage value reduced to zero on January 1, 2009) |
(NBV - Salvage Value) x (12/24 months) (46,666.67 - 0) x (12/24 months) |
23,333.34 |
|
January 1 through December 31, 2010 |
(NBV - Salvage Value) x (12/12 months) (23,333.33 - 0) x (12/12 months) |
23,333.33 |