Flat Rate

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%.

((Adjustment Amount / 2) x Flat Rate %) x Period Allocation

Calculation for the current period (YTD):

((2,000 USD / 2) x 12%) x 3/12 = 30 USD

Current Period Depreciation + ((Adjustment Amount x Flat Rate %) x Period Allocation)

Calculation for the following period:

30 USD + ((2,000 USD x 12%) x 1/12) = 50 USD

(Adjustment Amount x Flat Rate %) x Period Allocation

Calculation for Subsequent Periods:

(2,000 USDx12%) x 1/12 = 20 USD

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.

(( Adjustment Amount / 2) x Flat Rate %) x Period Allocation

Calculation for the current period (YTD):

((2,000 USD / 2) x 12%) x 3/12 = 30 USD

((Adjustment Amount / 2) x Flat Rate %) x Period Allocation

Calculation for all subsequent periods:

((2,000 USD / 2) x 12%) x 1/12 = 10 USD