Disposal Life Year Rules

Use disposal year rules to calculate depreciation on an asset to meet the requirements of a disposal year convention in the year that the asset was disposed. This type of disposal occurs during the life of the asset and not in the year that the asset is placed in service, nor in the final year that an asset becomes fully depreciated. In the first and final years in the life of an asset, the First Year Spread and Last Year Spread values override the disposal rules.

Disposal year rules only apply to a Compute Direction of I or C. If you are using a Compute Direction of R or P, disposal year processing is already set up; you do not have to create disposal year rules.

You can use two methods to set up a disposal year rule:

• Set up different disposal year rules by the life year in which that the asset is disposed.

  You must create life year rules that have a value of 9 in the Secondary % Continuation field on the Display tab on the Life Year Rules form.

• Set up a disposal year with a depreciation calculation that covers all life years.

  You must create a 999 life year rule.

Adding disposal year rules to an existing depreciation rule does not affect other assets that are using the depreciation rule and have not yet been disposed. The User Defined Depreciation program (R12855) only calls the disposal year rules for assets that have a value in the Effective From field, which allows all other assets to continue to depreciate as normal. You must manually enter the date disposed field. Therefore, you do not need to create new depreciation rules; you can change the existing rules to meet the disposal year depreciation calculation needs.

For example, an asset that has a disposed-of date of April 30thand uses a depreciation rule set up for a mid-year disposal continues to depreciate through the middle of the year per the convention. If the asset has a disposed-of date in October and uses the mid-year disposal convention, then depreciation starts at the mid-year point when you compute depreciation.

After depreciation has been calculated, you can use one of the Asset Disposal programs (R12104, P12105) to dispose of the asset. You do not have to remove the date disposed that you manually entered prior to disposal.