How Depreciation Is Calculated

Run the Calculate Depreciation process to calculate depreciation for all assets in a book for a period. If depreciation isn't calculated successfully for any assets, review the log file to determine the reason that depreciation failed.

When you run depreciation, you can either:

• Close the current period automatically after running depreciation. If all of your assets depreciate successfully, Assets closes the period and opens the next period.

• Keep the period remains open after running depreciation.

Note: Ensure that you have entered all transactions for the period before you run depreciation. Once the process closes the period, you can't reopen it.

Settings That Affect Depreciation Calculation

Depreciation calculation is affected by the following:

Setting	Description
Prorate date	Oracle Assets: Prorates the depreciation taken for an asset in its first fiscal year of life according to the prorate date. For example, if you use the half-year prorate convention, the prorate date of all assets using that convention is simply the midpoint of your fiscal year. So assets acquired in the same fiscal year take the same amount (half-a-year's worth) of depreciation in the first year. Your reporting authority's depreciation regulations determine the amount of depreciation to take in the asset's first year of life. For example: Some governments require that you prorate depreciation according to the number of months that you hold an asset in its first fiscal year of life. In this case, your prorate convention has 12 rate periods, one for each month of the year. Other reporting authorities require that you prorate depreciation according to the number of days that you hold an asset in its first year of life, meaning that the fiscal year depreciation amount would vary depending on the day that you added the asset. Thus, your prorate convention contains 365 prorate periods, one for each day of the year.
Calculation basis	Assets calculates depreciation using either the recoverable cost or the recoverable net book value as a basis: Asset cost: Assets calculates the fiscal year depreciation by multiplying the recoverable cost by the rate. Asset net book value: Assets calculates the fiscal year depreciation by multiplying the recoverable net book value as of the beginning of the fiscal year, or after the latest amortized adjustment, by the rate.
Prorate period	Assets uses the prorate date to choose a prorate period from the prorate calendar. Life-based methods: The prorate period and asset age determine which rate Assets selects from the rate table. The Calculate Depreciation process calculates the asset age from the date placed in service as the number of fiscal years that you have held the asset. If two assets are placed in service at different times, but have the same depreciation method and life, Assets uses the same rate table, but may choose a different rate from a different column and row in the table. Flat-rate methods: Use a fixed rate and don't use a rate table.
Depreciation rate	Life-based depreciation methods: Assets uses the depreciation method and life to determine which rate table to use. Then, Assets uses the prorate period and year of life to determine which of the rates in the table to use. Note that the life of an asset has more fiscal years than its asset calendar life if it's placed in service during a fiscal year. Flat-rate depreciation methods: Assets determines the depreciation rate using fixed rates, including the basic rate, adjusting rate, and bonus rate.

How Depreciation Is Calculated

Calculated and table-based methods calculate annual depreciation by multiplying the depreciation rate by the recoverable cost or net book value as of the beginning of the fiscal year.

Flat-rate methods calculate annual depreciation as the depreciation rate multiplied by the recoverable cost or net book value, multiplied by the fraction of the year that the asset was held.

After calculating the annual depreciation amount, Assets uses the depreciation calendar and the options chosen for dividing depreciation and depreciating when an asset is placed in service to determine how much of the fiscal year depreciation to allocate to the period for which you ran depreciation.

You can choose to allocate depreciation:

• Evenly to each of your accounting periods: Assets divides the annual depreciation by the number of depreciation periods in your fiscal year to get the depreciation per period.

• According to the number of days in each period: Assets divides the annual depreciation by the number of days that the asset depreciates in the fiscal year and multiplies the result by the number of days in the appropriate accounting period.

Assets allocates the periodic depreciation to the assignments to which you assigned the asset, according to the fraction of the asset units that is assigned to each depreciation expense account.