Formula-Based Depreciation Methods
PeopleSoft Asset Management is equipped to use the following different formula-based depreciation methods:
Straight Line
(IND) Straight Line Percent
Declining Balance with a Switch to Straight Line
Declining Balance with Depreciation Limit
Declining Balance
Flat Rate
Sum of the Year's Digits
PeopleSoft Asset Management can calculate depreciation for each of the first six methods using either a schedule or a formula. The formulas that it uses to calculate yearly depreciation for each of these methods are explained in the following pages.
Yearly Straight Line depreciation is calculated using the following formula:
Straight Line Depreciation Example
The following table shows data that is used in the depreciation example that follows.
|
Attributes |
Data |
|---|---|
|
Asset Cost |
11,000.00 USD |
|
Salvage Value |
1,000.00 USD |
|
Asset Basis |
10,000.00 USD (Cost - Salvage Value) |
|
Life |
60 periods (5 years) |
|
Begin Depr Dt. |
07/01/2006 |
Depreciation Results
The following table shows yearly depreciation and the calculation that is used to produce the result.
|
Year |
Depreciation Calculation |
Depreciation Expense |
|---|---|---|
|
2006 |
10,000 x (6/60) |
= 1000.00 |
|
2007 |
9000 x (12/54) |
= 2000.00 |
|
2008 |
7000 x (12/42) |
= 2000.00 |
|
2009 |
5000 x (12/30) |
= 2000.00 |
|
2010 |
3000 x (12/18) |
= 2000.00 |
|
2011 |
1000 x (6/6) |
= 1000.00 |
The Straight Line Percent method that is used in India differs from the Straight Line method. Depreciation is calculated based on rates rather than useful life. In addition, the rates also consider the residual or salvage value at the end of the asset useful life. In India the following assumptions are made:
Assets are depreciated as of the in-service date.
The minimum rates that are established by statute depreciate 95 percent of the asset cost over the asset useful life.
An entity is entitled to depreciate at a higher rate, but not lower.
When using Straight Line Percent as the method, you complete the Percent field with the depreciation rate. The Useful Life field is unavailable. Other fields are ignored for this depreciation calculation. Although residual value is included in the rate, you have to enter salvage value.
Salvage Value acts as a limit. When the NBV reaches this amount, it automatically allocates the rest of the depreciable amount to the last period. Life in Years reflects both years and fractions, such as 8.4. Useful Life and Life in Years are displayed after you save or refresh the page. AM_DEPR_CALC recalculates these fields when it runs. Those assets that are coming from batch processes will calculate only Useful Life and Life in Years when you run AM_DEPR_CALC.
The formula to calculate Useful Life is:
For example, an asset that is worth $1,000 and a salvage value of $50, with a 4.75% annual depreciation rate, using the actual month convention, will have a useful life of 20 years or 240 periods. Sometimes useful life may result in fractional periods.
|
Year |
NBV Begin |
Rate |
Depr |
NBV End |
|---|---|---|---|---|
|
2001 |
1,000.00 |
0.0475 |
47.50 |
952.50 |
|
2002 |
952.50 |
0.0475 |
47.50 |
905.00 |
|
2003 |
905.00 |
0.0475 |
47.50 |
857.50 |
|
2004 |
857.50 |
0.0475 |
47.50 |
810.00 |
|
2005 |
810.00 |
0.0475 |
47.50 |
762.50 |
|
2006 |
762.50 |
0.0475 |
47.50 |
715.00 |
|
2007 |
715.00 |
0.0475 |
47.50 |
667.50 |
|
2008 |
667.50 |
0.0475 |
47.50 |
620.00 |
|
2009 |
620.00 |
0.0475 |
47.50 |
572.50 |
|
2010 |
572.50 |
0.0475 |
47.50 |
525.00 |
|
2011 |
525.00 |
0.0475 |
47.50 |
477.50 |
|
2012 |
477.50 |
0.0475 |
47.50 |
430.00 |
|
2013 |
430.00 |
0.0475 |
47.50 |
382.50 |
|
2014 |
382.50 |
0.0475 |
47.50 |
335.00 |
|
2015 |
335.00 |
0.0475 |
47.50 |
287.50 |
|
2016 |
287.50 |
0.0475 |
47.50 |
240.00 |
|
2017 |
240.00 |
0.0475 |
47.50 |
192.00 |
|
2018 |
192.00 |
0.0475 |
47.50 |
145.00 |
|
2019 |
145.00 |
0.0475 |
47.50 |
97.50 |
|
2020 |
97.50 |
0.0475 |
47.50 |
50.00 |
|
|
|
Total Depreciation |
950.00 |
|
Remaining Value and Life to Date
Two different ways are available to calculate depreciation adjustments under Indian Straight Line Percent Method:
Remaining Value
Life to Date
For instance, in the preceding example, suppose that in the sixth year, the rate must change to 5.28 percent because the government adopts a new rate according to Schedule XIV. Using Remaining Value, the system calculates the useful life. It takes into account the new rate on the original cost. It calculates depreciation based on the NBV minus any residual value over the remaining new useful life, where remaining new useful life means the new useful life minus periods that are already depreciated.
Revised Useful Life:
Rounded up to 18 years or 216 months.
New Depreciation Amount:
New Depreciation Amount:
In the last period, the remaining value will be residual value.
The following table shows the depreciation with the adjustment in the sixth year.
|
Yearly Start Date |
Original Cost |
Schedule XIV Rates |
Effective Depreciation |
Net Book Value |
Number of Years |
|---|---|---|---|---|---|
|
01 JAN 2003 |
1000.00 |
0.0475 |
47.50 |
952.50 |
1 |
|
01 JAN 2004 |
952.50 |
0.0475 |
47.50 |
905.00 |
2 |
|
01 JAN 2005 |
905.00 |
0.0475 |
47.50 |
857.50 |
3 |
|
01 JAN 2006 |
857.50 |
0.0475 |
47.50 |
810.00 |
4 |
|
01 JAN 2007 |
810.00 |
0.0475 |
47.50 |
762.50 |
5 |
|
01 JAN 2008 |
762.50 |
0.0528 |
54.81 |
707.69 |
6 |
|
01 JAN 2009 |
707.69 |
0.0528 |
54.81 |
652.88 |
7 |
|
01 JAN 2010 |
652.88 |
0.0528 |
54.81 |
598.08 |
8 |
|
01 JAN 2011 |
598.08 |
0.0528 |
54.81 |
543.27 |
9 |
|
01 JAN 2012 |
543.27 |
0.0528 |
54.81 |
488.46 |
10 |
|
01 JAN 2013 |
488.46 |
0.0528 |
54.81 |
433.65 |
11 |
|
01 JAN 2014 |
433.65 |
0.0528 |
54.81 |
378.85 |
12 |
|
01 JAN 2015 |
378.85 |
0.0528 |
54.81 |
324.04 |
13 |
|
01 JAN 2016 |
324.04 |
0.0528 |
54.81 |
269.23 |
14 |
|
01 JAN 2017 |
269.23 |
0.0528 |
54.81 |
214.42 |
15 |
|
01 JAN 2018 |
214.42 |
0.0528 |
54.81 |
159.62 |
16 |
|
01 JAN 2019 |
159.62 |
0.0528 |
54.81 |
104.81 |
17 |
|
01 JAN 2020 |
104.82 |
0.0528 |
54.81 |
50.00 |
18 |
In the case of Life to Date, the useful life is again recalculated. This method takes into account the new rate on the original cost. Depreciation is based on what the system had calculated if the rate would have been the new rate from the beginning. An adjustment to the prior depreciation amounts is required in this method to reflect the change retroactively. It consists of summarizing all depreciation amounts until the change and comparing with the amount that would have been obtained if the asset had always been calculated based on the new rate.
Useful Life:
Useful Life:
Rounded up to 18 years or 216 months.
The following table depicts the depreciation if the rate had always been 5.28 percent.
|
Yearly Start Date |
Original Cost |
Schedule XIV Rates |
Effective Depreciation |
Net Book Value |
Number of Years |
Total Depreciation |
|---|---|---|---|---|---|---|
|
01 JAN 2003 |
1000.00 |
0.0528 |
52.80 |
947.20 |
1 |
|
|
01 JAN 2004 |
947.20 |
0.0528 |
52.80 |
894.40 |
2 |
|
|
01 JAN 2005 |
894.40 |
0.0528 |
52.80 |
841.60 |
3 |
|
|
01 JAN 2006 |
841.60 |
0.0528 |
52.80 |
788.80 |
4 |
|
|
01 JAN 2007 |
788.80 |
0.0528 |
52.80 |
736.00 |
5 |
264.00 |
|
01 JAN 2008 |
736.00 |
0.0528 |
52.80 |
683.20 |
6 |
|
|
01 JAN 2009 |
683.20 |
0.0528 |
52.80 |
630.40 |
7 |
|
|
01 JAN 2010 |
630.40 |
0.0528 |
52.80 |
577.60 |
8 |
|
|
01 JAN 2011 |
577.60 |
0.0528 |
52.80 |
524.80 |
9 |
|
|
01 JAN 2012 |
524.80 |
0.0528 |
52.80 |
472.00 |
10 |
|
|
01 JAN 2013 |
472.00 |
0.0528 |
52.80 |
419.20 |
11 |
|
|
01 JAN 2014 |
419.20 |
0.0528 |
52.80 |
366.40 |
12 |
|
|
01 JAN 2015 |
366.40 |
0.0528 |
52.80 |
313.60 |
13 |
|
|
01 JAN 2016 |
313.60 |
0.0528 |
52.80 |
260.80 |
14 |
|
|
01 JAN 2017 |
260.80 |
0.0528 |
52.80 |
208.00 |
15 |
|
|
01 JAN 2018 |
208.00 |
0.0528 |
52.80 |
155.20 |
16 |
|
|
01 JAN 2019 |
155.20 |
0.0528 |
52.80 |
102.40 |
17 |
|
|
01 JAN 2020 |
102.40 |
0.0528 |
52.40 |
50.00 |
18 |
|
Compare the preceding table that shows what the amount would have been with a constant rate of 5.28 percent versus the following table that shows what the amounts are with a change and an adjustment in the sixth year.
|
Yearly Start Date |
Original Cost |
Schedule XIV Rates |
Effective Depreciation |
Net Book Value |
Number of Years |
Adjustment |
|---|---|---|---|---|---|---|
|
01 JAN 2003 |
1000.00 |
0.0475 |
47.50 |
952.50 |
1 |
|
|
01 JAN 2004 |
952.50 |
0.0475 |
47.50 |
952.50 |
2 |
|
|
01 JAN 2005 |
905.00 |
0.0475 |
47.50 |
905.00 |
3 |
|
|
01 JAN 2006 |
857.50 |
0.0475 |
47.50 |
857.50 |
4 |
|
|
01 JAN 2007 |
810.00 |
0.0475 |
47.50 |
762.50 |
5 |
237.50 |
|
31 DEC 2007 |
26.50 |
736.00 |
|
264.00 |
||
|
01 JAN 2008 |
736.00 |
0.0528 |
52.77 |
683.23 |
6 |
|
|
01 JAN 2009 |
683.23 |
0.0528 |
52.77 |
630.46 |
7 |
|
|
01 JAN 2010 |
630.46 |
0.0528 |
52.77 |
577.69 |
8 |
|
|
01 JAN 2011 |
577.69 |
0.0528 |
52.77 |
524.92 |
9 |
|
|
01 JAN 2012 |
524.92 |
0.0528 |
52.77 |
472.15 |
10 |
|
|
01 JAN 2013 |
472.15 |
0.0528 |
52.77 |
419.38 |
11 |
|
|
01 JAN 2014 |
419.38 |
0.0528 |
52.77 |
366.62 |
12 |
|
|
01 JAN 2015 |
366.62 |
0.0528 |
52.77 |
313.85 |
13 |
|
|
01 JAN 2016 |
313.85 |
0.0528 |
52.77 |
261.08 |
14 |
|
|
01 JAN 2017 |
261.08 |
0.0528 |
52.77 |
208.31 |
15 |
|
|
01 JAN 2018 |
208.31 |
0.0528 |
52.77 |
155.54 |
16 |
|
|
01 JAN 2019 |
155.54 |
0.0528 |
52.77 |
102.77 |
17 |
|
|
01 JAN 2020 |
102.77 |
0.0528 |
52.77 |
50.00 |
18 |
Adjustment PDP:
Adjustment PDP:
New Depreciation Amount:
New Depreciation Amount:
Declining Balance with a Straight Line Switch performs two simultaneous equations to calculate yearly depreciation. One equation calculates declining balance depreciation and the other calculates straight line depreciation. PeopleSoft Asset Management then compares the two yearly depreciation amounts and applies whichever is greater.
Note that in this type of calculation the asset's net book value is multiplied by the declining balance percentage times the straight line depreciation percentage.
Declining Balance with a Switch to Straight Line Example
The following table shows data that is used in the depreciation example that follows it.
|
Attributes |
Data |
|---|---|
|
Asset Cost |
10,000.00 USD |
|
Life |
60 periods (5 years) |
|
Begin Depr Dt. |
07/01/2006 |
|
Declining Balance % |
200% |
Depreciation Results
The following table shows yearly depreciation and the calculation that is used to produce the result.
|
Year |
Depreciation Calculation |
Depreciation Expense |
|---|---|---|
|
2006 |
10,000 x ((6/60) x (200/100)) |
= 2000.00 |
|
2007 |
8000 x ((12/60) x (200/100)) |
= 3200.00 |
|
2008 |
4800 x ((12/60) x (200/100)) |
= 1920.00 |
|
2009 |
2880 x ((12/60) x (200/100)) |
= 1152.00 |
|
2010 x (SL) |
1728 x (12/18) |
= 1152.00 |
|
2011 x (SL) |
576 x (6/6) |
= 576.00 |
In this example, in 2010, the straight line depreciation is greater than the declining balance depreciation. Therefore, switch to straight line depreciation. The declining balance calculation for 2010 is 1728 x ((12/60) x (200/100)) = 691.20. In 2011, the straight line depreciation is equal to the declining balance depreciation.
This calculation type enables you to specify annual depreciation limits based on a percentage of an asset's cost. This method supports asset management practices that are commonly used in some European countries. In environments in which this is legally acceptable, the advantage to this method is that it provides greater decreases in value in the first years of an asset's service. In some environments, a company may use this depreciation method initially and then switch to straight-line when that method provides a greater write-off.
This method runs three calculations and performs comparisons between the results.
First, it calculates using the formula that is already documented for Declining Balance with a Switch to Straight Line:
NBV x ( (Number of Periods to Depreciate/Life) x DB% )
(See DB column in the table provided with the following example.)
It then calculates using the specified limit percentage of original cost or bet book value:
NBV x Limit%
(See MAX column in the table provided with the following example.)
The results of these two calculations are compared and the system determines which amount is lesser. (See Comparison 1 column in the table provided with following example.)
Finally, it calculates using the Straight Line formula:
NBV x (Number of Periods to Depreciate/Remaining Life)
(See SL column in the table provided with following example.)
Results of the Straight Line calculation are compared with the lesser amount from the first comparison. (Column SL compared with column Comparison 1 in the following table. Comparison 2 column shows when the Straight Line method produces the greater result.)
The greater amount between this final comparison is the annual depreciation amount. (See Depr column in the table after the following table.)
Declining Balance with Depreciation Limit Example
The following table shows data that is used in the depreciation example that follows it.
|
Attributes |
Data |
|---|---|
|
Asset Cost |
10,000.00 USD |
|
Life |
96 periods (8 years) |
|
Begin Depr Dt. |
01/01/2006 |
|
Declining Balance % |
300% |
|
Limit % |
30% |
Depreciation Results
The following table shows yearly depreciation and the calculation that is used to produce the result.
|
Year |
NBV |
DB |
Max (Limit%) |
Comparison 1 |
SL |
Comparison 2 |
Depr. |
|---|---|---|---|---|---|---|---|
|
Year 1 |
100000 |
37500 |
30000 |
30000 |
12500 |
30000 |
|
|
Year 2 |
70000 |
26250 |
21000 |
21000 |
10000 |
21000 |
|
|
Year 3 |
49000 |
18375 |
14700 |
14700 |
8167 |
14700 |
|
|
Year 4 |
34300 |
12862 |
10290 |
10290 |
6860 |
10290 |
|
|
Year 5 |
24010 |
9004 |
7203 |
7203 |
6003 |
7203 |
|
|
Year 6 |
16807 |
6303 |
5042 |
5042 |
5602 |
SW |
5602 |
|
Year 7 |
11205 |
4201 |
3361 |
3361 |
5602 |
SW |
5602 |
|
Year 8 |
5602 |
2101 |
1681 |
1681 |
5602 |
SW |
5602 |
For this type of calculation, the declining balance percentage represents a percentage of NBV.
When you are depreciating an asset with a declining balance method, the life of the asset is irrelevant. Note that if you used this method alone, an asset would never be fully depreciated. To fully depreciate an asset using the Declining Balance method, you must enter either a book low limit or an end depreciation date. When an asset's NBV reaches its book low limit or end depreciation date, the remaining value is taken in depreciation for that year.
Declining Balance Example
The following table shows data that is used in the depreciation example that follows it.
|
Attributes |
Data |
|---|---|
|
Asset Cost |
10,000.00 USD |
|
Salvage Value |
1,000.00 USD (not used for calculating asset basis) |
|
Asset Basis |
10,000.00 USD |
|
Life |
60 periods (5 years) |
|
Begin Depr Dt. |
01/01/94 |
|
Declining Balance % |
20% |
Depreciation Results
The following table shows yearly depreciation and the calculation that is used to produce the result.
|
Year |
Depreciation Calculation |
Depreciation Expense |
|---|---|---|
|
1994 |
10,000 x (20/100) |
= 2000.00 |
|
1995 |
8000 x (20/100) |
= 1600.00 |
|
1996 |
6400 x (20/100) |
= 1280.00 |
|
1997 |
5120 x (20/100) |
= 1024.00 |
|
1998 |
4096 x (20/100) |
= 819.20 |
|
1999 |
3276.80 x (20/100) |
= 655.54 |
|
2000 |
2621.21 x (20/100) |
= 524.24 |
Calculations continue in this manner until the book low limit or end depreciation date is reached. If no book low limit or end depreciation date is specified, the asset never fully depreciates.
The formula for calculating Flat Rate depreciation is simple.
Flat Rate with an Averaging Option
You can combine the Flat Rate depreciation method with either a monthly or yearly averaging option. These options are typically used by utility companies to depreciate composite assets. When these options are used, PeopleSoft Asset Management uses up to three separate formulas to calculate depreciation for adjustments—one for calculating current period depreciation, one for calculating following period depreciation, and one for calculating depreciation for all subsequent periods.
These formulas are used only for calculating additional depreciation resulting from adjustments to the average balance. And these adjustments are applied only to the current year. For all subsequent years, as well as the first time it is done, the system calculates depreciation by applying the flat rate percentage to the average balance and allocating this amount among the periods.
Because of the averaging option, all adjustment transactions must take effect from the beginning of the year to its end. Therefore, current period depreciation is calculated after each transaction on a year-to-date basis.
As adjustments are made, additional depreciation is posted for each period that is affected.
Note: Using the flat rate depreciation method causes any depreciation to be posted to the end of the calendar. If this is not your intention, you must enter a low limit of .01 when you first select the depreciation method on the Asset Book Definition page group for this asset. If you have not already done this, update the Depreciation Method field on the General 2 page by selecting Flat Rate and entering .01 in the Low Limit additional field that appears.
Monthly Averaging Option
Review the following examples of monthly averaging calculations resulting from a $2000 adjustment made in period 3. The asset is depreciated at 12%.
Calculation for the current period (YTD):
Calculation for the following period:
Calculation for Subsequent Periods:
Note: The only exception to this rule occurs when the following period crosses into another fiscal year. When this is the case, all periods but the current one are calculated using the full value of the transaction. Current Period depreciation is not added to the following period depreciation.
Yearly Averaging Option
When using the yearly averaging option, you'll want to estimate financial activity for the year. The original estimate should be posted as an add transaction in the first period of the year and subsequently adjusted as the actual figures become available.
Review the following example of the yearly averaging option using the same 2,000 USD adjustment in Period 3. The asset is depreciated at 12 percent.
Calculation for the current period (YTD):
Calculation for all subsequent periods:
Yearly Sum of the Years' Digits depreciation is calculated using the following formula:
Sum of the Years Digits Example
The following table shows data that is used in the depreciation example that follows it.
|
Attributes |
Data |
|---|---|
|
Asset Cost |
3700.00 |
|
Salvage Value |
100.00 |
|
Asset Basis |
3600.00 |
|
Life |
36 periods (3 years) |
|
Begin Depr Dt. |
07/01/2006 |
Depreciation Results
The following table shows yearly depreciation and the calculation that is used to produce the result.
|
Year |
Depreciation Calculation |
Depreciation Expense |
|---|---|---|
|
2006 |
3600 x (3/(1+2+3)) x (6/12) |
= 900.00 |
|
2007 |
2700 x (2.5/(1+2+3/2)) x (12/12) |
= 1500.00 |
|
2008 |
1200 x (1.5/(1+ 2/2)) x (12/12) |
= 900.00 |
|
2009 |
300 x (0.5/(1/2)) x (6/6) |
= 300.00 |
Calculation for the first year Sum of Years Remaining = 3/(1+2+3)
Units of Production
Units of production depreciation differs from other methods in that it does not depreciate an asset based on its periods of life, but rather on its production detail. In this method, an asset is assumed to have a fixed lifetime production capacity—a maximum number of units it can produce. Thus, a fixed amount of depreciation is allotted to each unit of production. The net book value of the asset is then multiplied by the number of units that are produced in a period over the remaining units to be produced to determine how much depreciation to take for that period.
Production detail for the asset is entered into the Units of Production table Each time new detail is added to this table, open transactions are created for each asset that is associated with it. You should recalculate depreciation each time you add to or change the detail in the Units of Production table.
Units of Production Example
The following table shows data that is used in the depreciation example that follows it.
|
Attributes |
Data |
|---|---|
|
Asset Cost |
10,000.00 USD |
|
Total Estimated Production Units |
40,000 |
|
Production Units for each month |
10,000 |
Depreciation Results
The following table shows yearly and monthly depreciation and the calculation that is used to produce the result.
|
Year, Month |
Depreciation Calculation |
Depreciation Expense |
|---|---|---|
|
Year 1, Month 1 |
10,000 x (10,000/40,000) |
= 2500.00 |
|
Year 1, Month 2 |
7500 x (10,000/30,000) |
= 2500.00 |
|
Year 1, Month 3 |
5000 x (10,000/20,000) |
= 2500.00 |
|
Year 1, Month 4 |
2500 x (10,000/10,000) |
= 2500.00 |
Note: Units remaining are calculated by summing the production units for all remaining periods that are set up on the Units of Production page