Understanding Depreciation Processing
PeopleSoft Asset Management can calculate depreciation for more than 18,000 different scenarios, depending on the depreciation attributes that you select. Most standard depreciation methods and prorate conventions are delivered, along with functionality for you to define your own depreciation methods and prorate conventions. In the United States, PeopleSoft Asset Management calculates tax credits and tax credit recapture. Standard depreciation reports are provided, as well as reports that enable you to comply with the U.S. Tax 40% Rule, the U.S. Alternative Minimum Tax (AMT), and the U.S. Adjusted Current Earnings (ACE). Outside the U.S., PeopleSoft Asset Management provides depreciation methods that are commonly used in Europe, Australia, India, and Japan, as well as other methods that are used globally.
PeopleSoft Asset Management calculates the annual depreciation based on the asset's life, depreciable cost basis, placed-in-service date, and any depreciation limits that you specify. You can set up required depreciation attributes on three levels: You can enter them in your business unit books, define them when you set up asset profiles, or specify them when you add assets to the system.
When you set up your business unit books, specify whether each book is a financial book, a tax book, or a financial book with tax information. This specification acts as a filter, enabling you to select options that correspond to the book type that you specified. For example, if you define a book as a tax book in the U.S., PeopleSoft Asset Management does not allow you to select depreciation attributes that are not supported by U.S. federal tax code.
Asset profiles function as templates. They provide a quick way to enter asset information, especially depreciation criteria. Rather than enter the book, method, convention, life, and tax credit information each time that you add an asset, you can use the asset profile to supply that information by default. When you enter assets, specify the profile ID. If any depreciation information in the profile does not apply, you can override it.
You can also specify depreciation attributes as you add assets to PeopleSoft Asset Management. Do this if the asset profile does not contain the depreciation criteria that you want for the asset. If you use more than one book, specify the depreciation criteria for each book.
To ensure correct depreciation processing, the PeopleSoft detail calendar that you use must include at least five years prior to the life of the oldest asset. For example, if the life of the oldest asset began on January 1, 2000, your calendar must begin no later than January 1, 1995. These prior periods are required for correct depreciation processing.
Build detail calendars beyond the end depreciation date of the asset as well. When you do this, the system calculates depreciation over the longer period correctly for any added assets that have a longer than usual service life. If any short tax years are contained within this five-year period, create a calendar of more than five years to ensure correct depreciation.
If you use a depreciation method that relies on tables specifying the percentage of depreciation that is expensed for each period, review the delivered depreciation schedules. If you use depreciation schedules that are different from those delivered, you must add a schedule with the appropriate percentages for each in-service period for each year of life.
PeopleSoft Asset Management provides all standard prorate conventions. In addition, it enables you to build new conventions based on calendars and to copy conventions from one SetID to another as appropriate.
Note: PeopleSoft Asset Management enables you to change both depreciation conventions and schedules as you deem necessary. If you change either the schedule or convention, you get a warning that the convention and the schedule do not agree. When you save your change, PeopleCode changes the convention or the schedule for you. The depreciation will calculate correctly whether you enter a change to schedule or convention and in either order.
Follow these steps to process depreciation:
Run the Depreciation Calculation Application Engine process (AM_DEPR_CALC).
Review open transactions.
Change depreciation attributes and expand periods as needed.
Review the depreciation processing results for errors.
Create pending depreciation transactions.
Create period depreciation accounting entries.
When you have completed processing depreciation, you must go on to create accounting entries for the period depreciation. Before you create any accounting entries, check the processing options to determine whether the system runs processes automatically or whether you must schedule processing.
To create period depreciation accounting entries:
Determine which periods are open to ensure that depreciation is expensed to the correct period.
To verify periods, use the Establish Business Units component, and access the Asset Management Definition page. Click the Update Open Periods link to review open and closed periods on the Open Period Update page.
If the open periods show that the current accounting period is open, you can create period depreciation accounting entries. If not, you must close the prior period manually and open the current period before creating period depreciation accounting entries.
Account for any depreciation that is allowed for time during which an asset was not established in PeopleSoft Asset Management.
When you acquire assets (or place assets in service) during one accounting period but add them to PeopleSoft Asset Management during a different accounting period, you need to account for any depreciation that is allowed for the time during which the asset was not established in PeopleSoft Asset Management. You can do this by adjusting the transaction and accounting dates.
Typically, the transaction date represents the date that you actually acquired the asset and the accounting date represents the date that you begin expensing depreciation. The accounting date is validated against the open periods for PeopleSoft Asset Management that are stored in the FIN_OPEN_PERIOD table to determine the period to which it is expensed. The difference between the transaction date and the accounting date determine whether any prior period depreciation needs to be calculated. For example, suppose that a computer was acquired and placed in service on March 15, 2005, but the information was not entered into PeopleSoft Asset Management until August 1, 2005. All periods prior to August are closed. PeopleSoft Asset Management automatically calculates depreciation starting in March, and it reflects this depreciation in the August period. When period depreciation accounting entries are created for August, they will reflect all depreciation activity since March.
Note: This is the only time life-to-date calculations take place without being selected.
Create accounting entries for the amount that you enter during the Add process for assets with accumulated depreciation.
When you add an asset with accumulated depreciation, you can create accounting entries for the amount that you enter during the Add process. When the asset has been added, accumulated depreciation is updated each time that you create new period depreciation accounting entries.
Set up the depreciation allocation calendar.
The amount of depreciation that you can expense for each period depends on how you set up your calendar. You can define the periods as months. When you set up your calendar, specify the year, the number of periods in each year, the beginning and ending date of each period, and the name of each period. For example, if you use a monthly calendar, the first period might be called January or April.
You also specify the portion of depreciation to be allocated for each period. For example, if you use a monthly calendar, you can specify that 1/12 of the annual depreciation amount is allocated to each period.
Close accounting periods.
When you have created accounting entries for depreciation for an accounting period, you must close it.