Overview of Asset Categories

Asset categories let you define information that is common to a group of assets, such as the depreciation method and the prorate convention.

General category information includes a description of the category, and default information such as whether assets in this category are leased or owned, personal or real property, and whether they are capitalized. You can also specify if assets by default are in physical inventory or are enabled in Oracle Assets.

Asset categories also contain:

General Ledger accounts
Default depreciation rules
Tax book depreciation rules
Default subcomponent depreciation rules
Group asset depreciation rules

General Ledger Accounts

You assign General Ledger accounts to your category during category setup.

Assign the following General Ledger accounts when defining asset categories:

Asset Cost account: Reconcile asset costs to your general ledger. Assets creates journal entries for this account to reflect additions, retirements, cost changes, transfers, reclassifications, and capitalizations.
Asset Clearing account: Reconcile your payables system and Assets for manual asset additions and cost adjustments. For mass additions, Assets uses the complete account combination that comes over with a mass addition line to reconcile the asset addition or cost adjustment with your payables system.
Depreciation Expense account: Charge depreciation for assets in this category and book to this account.
Accumulated Depreciation account: Use this account as the contra account for the asset cost account for this category.
Bonus Expense account: Use this account if you've set up bonus rates. If you don't enter a value in the bonus expense account, it defaults to the depreciation expense account.
Bonus Reserve account: Use this account to post bonus reserves. If you don't enter a value for the bonus reserve account, it defaults to the accumulated depreciation account.
CIP Cost account: Reconcile construction-in-process (CIP) asset costs to your general ledger.
CIP Clearing account: Use this account if you entered a CIP cost account.
Unplanned Depreciation Expense account: Charge unplanned depreciation for assets in this category and book to this account.

Default Depreciation Rules

Set up default depreciation rules for each category in each book. The default depreciation rules that you set up for a category also depend upon the date placed in service ranges you specify. Assets defaults the depreciation rules when you add an asset, to help you add assets quickly. If the default doesn't apply, you can override many of the defaults for an individual asset.

Set up the following default depreciation rules when defining asset categories:

Placed in service range: When you add an asset, the depreciation rules default according to the date placed in service of the asset, the category, and the book. You can specify as many ranges of default depreciation rules as you need. If you leave the end date blank, Assets uses that set of depreciation rules indefinitely.
Depreciate: The Depreciate checkbox specifies whether assets are normally depreciated in this book and category.

Note: Expensed assets are not depreciated, even if the Depreciate checkbox is checked.
Method: Specifies the default depreciation method for assets in this book and category:
- If you enter a life-based method, you must enter the asset life in years and months. The table-based method you enter must have the same number of periods as the prorate calendar for this book.
- If you enter a flat-rate method, you must enter default values for the basic rate and adjusted rate that you normally use to depreciate assets in this book and category. If you're defining this category for a tax book, you also can enter a bonus rule.
Depreciation limit type: Specifies whether to depreciate an asset beyond the recoverable cost in the years following the useful life of the asset.
Bonus rule: Specifies the default bonus rule for assets in this book and category. You can use bonus rules for corporate books and tax books, using all depreciation methods.
Prorate convention and retirement convention: Specifies the default prorate and retirement conventions assigned to assets in this book and category.
Default salvage value: Specifies a default salvage value percentage for this category, book, and range of dates placed in service. This rule is valid only if you chose to use the default percentage from the salvage value for this book.

For example, if you want the salvage value to default to 10 percent of the cost, enter 10. When you perform transactions affecting asset cost, Assets uses this default percentage to calculate the salvage value according to the following formula:

Salvage Value = Cost * Default Percentage

For tax books, optionally enter either a depreciation expense or cost ceiling.
Depreciation ceiling: Specifies the depreciation expense limit to be used for assets in this tax book and category.
Capital gains threshold: Specifies the minimum time you must hold an asset for Assets to report it as a capital gain when you retire it.
Mass property eligible: Specifies whether assets added to this category are eligible to be mass property assets. A mass property asset contains multiple assets with the same category, book, and fiscal year combination.

Tax Book Depreciation Rules

The following depreciation rules are specific only to tax books:

Straight line for retirements: Specifies that a straight-line depreciation method is used to identify the gain or loss resulting from the retirement of 1250 (real) property.
Method: Specifies the default depreciation method for assets in tax books.
Life: Specifies the default number of years and months for assets in tax books.

Default Subcomponent Depreciation Rules

The following depreciation rules are specific only to assets that are subcomponent assets of parent assets:

Rule: Specifies the default life of the subcomponent asset based on the life of the parent asset.
- None (leave field blank): There's no connection between the life of the subcomponent asset and the parent asset. Assets defaults the subcomponent asset life from the asset category.
- Same end date (no minimum life specified): The subcomponent asset becomes fully depreciated on the same day as the parent asset or at the end of the category default life, whichever is sooner. The default subcomponent asset life is based on the end of the parent asset life and the category default life. If the parent asset is fully reserved, Assets gives the subcomponent asset a default life of one month.
- Same end date (minimum life specified): The subcomponent asset becomes fully depreciated on the same day as the parent asset, unless the parent asset life is shorter than the minimum life you specify. The subcomponent asset's life is identified based on the end of the parent asset's life, the category default life, and the minimum life. If the parent asset's remaining life and the category default life are both less than the minimum life you enter, Assets uses the minimum life for the subcomponent asset. Otherwise, it uses the lesser of the parent asset's remaining life and the category default life.
- Same life: The subcomponent asset uses the same life as the parent asset. It depreciates for the same total number of periods. If the subcomponent asset is acquired after the parent asset, it depreciates beyond the end date of the parent asset life.
Minimum life (years and months): Specifies the minimum life of subcomponent asset when you choose same end date for the subcomponent life rule. If the parent asset's remaining life and the category default life are both less than the minimum life you enter, Assets uses the minimum life for the subcomponent asset. Otherwise, it uses the lesser of the parent asset's remaining life and the category default life.

Group Asset Options

Set up these rules for your asset categories. These depreciation rules are specific only to group assets and their member assets.

Recognize Gain or Loss

This rule specifies that gain and loss isn't recognized at the time of the retirement. This option applies only to assets that are members of a group asset. Select one of these options in the Recognize Gain or Loss field:

Do not recognize: When you select this option, the application doesn't recognize gain and loss at the time of retirement. For each member asset, the retirement proceeds of sale, cost of removal, and retired cost are adjusted with the group reserve. No gain or loss is recognized.
Immediately when retired: When you select this option, the application recognizes gain and loss when the member asset is retired, and the cost and reserve of the retiring member asset is removed from the group. You must first identify the retiring member asset's reserve amount before calculating gain and loss. The reserve amount is usually proportionate to the retiring member asset's cost in the group. Here's the formula used to calculate gain and loss:
Retiring member asset reserve = (Member asset cost/ Group asset cost) * Group asset reserve
You can also enter the retiring member asset's reserve manually if the reserve amount retired is required to be a different figure that the proportionate reserve amount. In this case, the application uses the manually entered reserve amount to calculate the gain and loss upon retirement.

Terminal Gain or Loss

This rule specifies when to recognize terminal gain or loss. Terminal gain or loss occurs when the last member asset in a group asset is retired, and no additional assets will be added to the group asset. The remaining accumulated depreciation balance in the group asset is the terminal gain or loss amount. Select one of these options in the Terminal Gain or Loss field:

Recognize at end of year: The recognition of terminal gain or loss is postponed until the last period of the current fiscal year. However, if you add an asset to the group before the end of the current fiscal year, terminal gain and loss is no longer valid. Therefore, the application won't recognize terminal gain or loss.
Do not recognize: The application doesn't recognize terminal gain or loss and the reserve amount remains in the group. In this case, the group will have a negative net book value.
Immediately when retired: The application recognizes the terminal gain or loss immediately in the period when it occurred. That is, the application recognizes the terminal gain or loss upon retirement of the last member in the group asset.

Recapture Excess Reserve

This rule specifies whether the excess group asset accumulated depreciation should be recaptured and recognized as a gain. This rule also dictates whether a group asset can have a negative net book value (NBV). In this case, the NBV is reduced to zero and the depreciation stops for the group. You can update this option only if the Over Depreciate field is set to Do not allow for your group asset.

Limit Net Proceeds to Cost

This rule specifies that the amount of proceeds that can be added to accumulated depreciation is limited to the recoverable cost of the retiring member asset. You can enable this option only if the Recognize Gain or Loss rule is set to Do not recognize gain and loss. When you enable this option, the net proceeds from an asset retirement are added to the group reserve until it’s equal to the adjusted cost of the retiring asset. Any additional amounts are recognized as a gain.

The application uses this formula to calculate net book value retired amount:

Net proceeds (Proceeds of Sale - Cost of Removal) – Cost

Tracking Method

This rule specifies that depreciation is calculated and tracked at the member asset level, in addition to the group level. Select one of these tracking methods:

Allocate group amount: This option specifies whether to allocate the calculated group depreciation amount to its member assets. The allocation is based on the depreciable basis of the member assets.
When you select the Allocate group amount tracking method, these three options become visible:
- Allocate to fully retired and reserved assets: If you enable this option, the application allocates depreciation to fully retired and fully reserved member assets, thus bypassing all validation done for fully reserved and retired assets when calculating depreciation. Once you enable this option, the Distribute excess and Reduce excess options are disabled.
- Distribute excess: Select this option if you want the excess amount to be redistributed between the other member assets of the group that aren't fully reserved, based on the depreciation basis of the remaining member assets.
  Note: This option isn't available if you select the Allocate to fully retired and reserved assets option.
- Reduce excess: Select this option if you want the excess amount to be reduced from the depreciation expense charged to the group asset for the period.
  Note: This option isn't available if you select the Allocate to fully retired and reserved assets option.
Calculate member asset amount: This option specifies whether depreciation is calculated at the member asset level. When you select the Calculate member asset amount tracking method, the Depreciate By option becomes visible.

Depreciate By

Group method: The application uses the depreciation method of the group asset to calculate depreciation for member assets. When you select this method, the total of member and group depreciation expense is always the same, because the depreciation method used for both is the same.
Member method: The application uses the depreciation method of the member asset to calculate the member asset depreciation. With this method, the total depreciation expense amount of the member asset might be different from the total depreciation expense amount of the group asset. In this situation, group depreciation amounts are booked at the group asset level and member asset amounts are for tracking purposes only.

Group Asset Number

This option specifies the group asset that all assets added to this category are assigned to. If you enter a group asset number in this field, all capitalized and construction-in-process (CIP) assets using this category are automatically assigned to the group asset entered.