DEPR METHODS - BASIC SETUP

Use this screen to set up and define the specific parameters for each depreciation method that is used at your company and that is assigned to depreciable assets (for the G/L book and for any optional books used).

The setup data in this screen is effective across all companies and is not company-specific. If you have set up multiple companies in Costpoint, all companies can enter, view, and use the data in this screen.

If you have multiple companies and a depreciation method that is specific to one company and should not be used by other companies, you will need to create an easily identifiable depreciation method code. Because this is a "Corporate" table for use by all companies and the system cannot enforce company-specific rules, you will need to establish specific internal control procedures on the use of depreciation method codes.

You should set up depreciation method data as one of the first steps in the initialization process. The Depr Method Code field is a system-required field in the G/L Book Info (Years) subtask of the Maintain Asset Master Info screen (and/or the Maintain Asset Template Info screen) if you have indicated that the asset is Depreciable and that depreciation is based on Years in those two screens. Depreciation method codes are not applicable for non-depreciable records or for depreciable records for which the basis of depreciation is Units of Usage or Lease Pds. Please refer to Special Topic FA-2, "Initialization Procedures," for additional information.

The only codes from which to choose for entry in the Depr Method Code field of the G/L Book Info (Years) and Other Books Info subtasks of the Maintain Asset Master Info screen and Maintain Asset Template Info screens (and the corresponding fields in the Maintain Asset G/L Book Info and the Maintain Asset Other Books Info screens) are validated depreciation method codes from this screen.

Note:  If a depreciation method code from this screen is currently in use (that is., it has been assigned in either an Asset Master record or an Asset Template record), you cannot delete that code from this screen. If you want to delete it, you must assign a different code in the applicable records (either manually or by using the Asset Master Info Global Change function). When the depreciation method code is no longer in use, you can delete it from this screen.

You should set up depreciation method code data in this screen as one of the first steps in the initialization process before you begin to add data in an Asset Master or Asset Template record.

Although you can add to, delete, or change the information in this screen (within the system rules) at any time, use caution in the timing of your edits, which could alter the calculation of depreciation and produce unexpected results when you post depreciation to the General Ledger.

Depreciation Method Identification

In this group box, you can set up an identification code and description for each of the depreciation methods in use at your company.

Code

Enter up to six alphanumeric characters in this required field to identify a depreciation method code. If you have already established one or more depreciation method codes, you can use Find if you know the depreciation method code. You can use Query to list all depreciation codes from which to select one or if you need to search for depreciation method codes based on specific criteria.

The codes that you establish for use with your asset records should be specific to your company requirements. There is no virtual limit to the number of depreciation method codes that can be set up in this screen.

Note:  You cannot delete a depreciation method code once you have assigned it for use in any book of a depreciable asset.

For ease in recognition, you may want to establish meaningful codes that identify the type of depreciation method (such as straight-line, declining balance, or sum-of-the-years''-digits) as well as the years of useful life. For example, a straight-line method used for an asset with a three-year useful life might be set up with an "SL3" depreciation method code.

Description

Enter up to 30 alphanumeric characters in this required field to provide the description for the depreciation method code. Although only a single character entered in this field fulfills the system requirement for a description, you will find it more beneficial to supply a meaningful description since your entry will display when using Lookup on depreciation method codes and in reports that use this field.

Depreciation Method Parameters

In this group box, for each depreciation method you use, you must specify the years of useful life, the total percentage to depreciate, and the percentage to use for each depreciation year. This information is used to direct the system calculation of depreciation on a method-by-method basis, based on your specifications and the characteristics of the individual asset record.

You can enter this data can manually, or you can choose to have the system calculate the depreciation percentage data by selecting the Auto Calc pushbutton. The Auto Calc pushbutton brings up another screen from which you select the depreciation method and conditions to be used in the calculation. You can use automatic system calculations for three common depreciation methodologies: straight-line, declining balance, and sum-of-the-years'-digits. Note that automatic system percentage calculations can be overwritten as needed.

Years of Useful Life

Enter up to two numeric characters in this required field to indicate the number of years (useful life) over which an asset should be depreciated using this depreciation method. Accepted values in this field range from 1-99.

Note:  For half-year convention methods, you will need to enter a value in this field that exceeds the actual useful life. The Years of Useful Life field in this screen is used only for depreciation calculations, and it may be different from the value that you enter in the Useful Life field of the G/L Book Info (Years) or Other Books Info subtasks of the Maintain Asset Master Info and Maintain Asset Template Info screens (and/or the Maintain Asset G/L Book Info and the Maintain Asset Other Books Info screens), as applicable. Please refer to the special example illustrated for a half-year convention in the documentation section for the Percent field.

Total % to Depreciate

Enter a percentage in this required numeric field to indicate the percentage of the asset to be depreciated using this depreciation method. Your entry in this field must be greater than zero and cannot exceed 100%. You can enter up to three integers and four decimal places (for example., 100.0000%).

You should not reflect your overall company policies regarding salvage percentages in this field. Although you can indicate whether salvage value should be deducted before depreciation is calculated for each depreciation method, you should specify a salvage value and salvage percentage, if applicable, on a record-by-record basis in the G/L Book Info (Years) or Other Books Info subtasks of the Maintain Asset Master Info and Maintain Asset Template Info screens (and/or the Maintain Asset G/L Book Info and the Maintain Asset Other Books Info screens), as applicable.

Table Window

Warning:  Technically, in this version of Costpoint, you can use the standard Windows Find and Replace functionalities at any child table window screen (including this screen). You can safely use Find because its sole purpose is to help you locate specified data within the table window.

The Replace function, although powerful when used in the proper circumstances, can also be extremely dangerous. The Replace function will change the specified data when you save the table window and will NOT create an audit trail. In addition, dependent data rules within Costpoint can complicate the Replace functionality.

We recommend that you NEVER use the Replace functionality in this screen because this function is inappropriate for the data contained in this table window. For more information about Find and Replace, please see the Basic Functions documentation.

Year

Enter up to two numeric characters in the first column of this table window to indicate which year of the useful life you are defining. For example, if you entered "3" in the Years of Useful Life field, you will probably enter values of "1," "2," and "3" in this column for a conventional three-year method.

The value entered in this column cannot exceed the number of years entered in the Years of Useful Life field. If you need to enter a year that is greater than the total years specified, you should first edit the value in the Years of Useful Life field. (Please refer to the special example illustrated for a half-year convention method in the documentation section for the Percent field.)

Percent

In this column, assign a percentage for each year specified in the Years of Useful Life field. Although there is no system validation that requires you to make an entry for each specified year, the system will not compute depreciation for a year that is excluded or for a year in which the percentage is zero.

As you enter percentages in this column, the cumulative total will automatically display in the Cumulative % field. To save this record, the value in the Cumulative % field must equal the value in the Total % to Depreciate field.

Note:  As an option, you can choose to have the system calculate the depreciation percentage data for you by using the Auto Calc pushbutton at the bottom of this screen. This function brings up another screen from which you can select the depreciation methodology and conditions to be used in the calculation. Automatic system calculations can be executed for three common depreciation method types: straight-line, declining-balance, and sum-of-the-years'-digits. Note that automatic system calculations can be overwritten as needed.

Example 1: Declining Balance Method (2.00 Multiplier), 7-Year Life

Note:  In this example, the percentages that begin in Year 5 reflect a switch to a straight-line method (the first year in which straight-line depreciation will exceed declining-balance). Your setup for this type of depreciation method will depend on the depreciation policies in place at your company.

Example 2: Straight-Line Method, 5-Year Life, Half-Year Convention

Cumulative %

This field is not available for user entry. As you enter percentages in the Percent column for each year, the cumulative total will automatically display in this field. In order to save this record, the value in the Cumulative % field must equal the value in the Total % to Depreciate field.

Depreciation Basis

In this group box, you must select the appropriate depreciation basis to link with the depreciation method. You can choose between two radio buttons that specify the use of a Date of Purchase depreciation basis or a Fiscal Year depreciation basis. The Date of Purchase radio button is the default.

Date of Purchase

If you link a Date of Purchase basis with your depreciation method, the system references the date of purchase for each asset.

(This "starting" point is normally entered in the Depr Start Date field in an Asset Master record in the G/L Book Info (Years) and Other Books Info subtasks of the Maintain Asset Master Info screen (and/or the corresponding fields in the Maintain Asset G/L Book Info and Maintain Asset Other Books Info screens), as applicable.)

For this basis, depreciation begins in the month of purchase (or in the month following the purchase, and so on, depending on your company policy) and continues for the specified number of years of useful life. Regardless of where you are positioned in your fiscal year, the Date of Purchase basis expenses depreciation based on the asset's purchase year.

Fiscal Year

If you link a Fiscal Year basis with your depreciation method, the system expenses the full annual depreciation amount in the current fiscal year, irrespective of the number of accounting periods (or days) remaining in the fiscal year. Use of the Fiscal Year basis generally accelerates depreciation in the first fiscal year when compared to depreciation using the Date of Purchase basis, except when the date of purchase coincides with the first period of the fiscal year. The same methodology is applicable if you use a half-year convention, but the percentage of annual depreciation is half that of a full year in the first and last years.

Calculations Compared Using Date-Purchased vs. Fiscal Year Basis

In the basic example below, consider the differences in current period depreciation calculations for a $15,000 asset, with a useful life of five years, no salvage value, using straight-line depreciation, for both the DP and FY basis. For this example, the current fiscal year is calendar year 2002, the current accounting period is 8, the number of accounting periods in the fiscal year is 12, and the purchase date and start date for the asset are 8-1-02.

Note:  The computed annual depreciation expense is identical for the DP and FY basis. The current period depreciation expense, however, is different. Because there are period differences for each basis, the amount booked for the fiscal year will also be different.

Using the DP basis for depreciation, the annual depreciation expense of $3,000 is divided by the number of accounting periods (12) in the purchase year. One period of expense ($250) is charged for the current accounting period, irrespective of the fiscal year dates.

Using the FY basis for depreciation, the annual depreciation expense of $3,000 is divided by the number of accounting periods remaining in the fiscal year. In this example because "8" is the current accounting period, there are only five accounting periods remaining in the fiscal year over which to spread the annual depreciation cost of $3,000. Note that use of the FY basis accelerates depreciation in the first year by $1,750 more than with use of the DP basis ($3,000 minus $1,250 = $1,750).

Please refer to Special Topic FA-3, "Calculate Depreciation," for more information on the differences between the Date of Purchase and the Fiscal Year basis.

If you have assigned a Date of Purchase basis to one or more depreciation methods in the Depr Methods - Basic Setup screen AND you have also selected the Added to current period amount radio button in the System-Wide Configuration for Depreciation Calculations group box in the Fixed Assets Settings screen, the system displays the following soft warning message before computing depreciation:

"You have assigned a Date of Purchase basis to one or more depreciation methods in the Depr Methods - Basic Setup screen. You have also selected the Catch-Up calculation option in the Fixed Assets Settings screen that adds missed depreciation for prior periods in the current year to the current period depreciation amount.

In order to ensure the proper calculation of depreciation under these conditions, make sure that you have first set up historical fiscal year and period data in the Maintain FA Fiscal Years and Maintain FA Accounting Periods screens. Please refer to the documentation for these screens for additional information."

You should set up this data on a one-time basis for each year specified in the depreciation start date assigned to your Asset Master records (for which there is remaining book value). Make sure that you INSERT the earlier fiscal years into the Maintain FA Fiscal Years screen instead of using the New Line function.

Alternately, if you do not want to add historical fiscal year and period data in the Maintain FA Fiscal Years and Maintain FA Accounting Periods screens, you can select the Spread among remaining periods in PY or FY radio button in the System-Wide Configuration for Depreciation Calculations group box in the Fixed Assets Settings screen. This option spreads missed depreciation for prior periods among the remaining periods in the current purchase year or fiscal year.

Subtract Salvage Value Before Calculation

Select this checkbox if you want the system to subtract applicable salvage value from the cost of an asset before performing depreciation calculations, for all assets to which this depreciation method has been assigned. The default status for this checkbox is checked.

You can specify salvage value or salvage percentage on a record-by-record basis in the G/L Book Info (Years) or Other Books Info subtasks of the Maintain Asset Master Info and Maintain Asset Template Info screens (and/or the Maintain Asset G/L Book Info and the Maintain Asset Other Books Info screens). If you specify salvage percentage, the system automatically computes the salvage value for an Asset Master record, based on the Total Cost field in the G/L Book Info (Years) and/or the Other Books Info subtasks of the Maintain Asset Master Info screen (or the corresponding fields in the Maintain Asset G/L Book Info and/or the Maintain Asset Other Books Info screens), as applicable.

If you select this checkbox, the system will deduct the salvage value displayed in the Asset Master record from the total cost for each book before depreciation calculations begin. This value, which represents the total cost adjusted for salvage, automatically displays in the Amount to Depreciate field in the G/L Book Info (Years) and/or the Other Books Info subtasks of the Maintain Asset Master Info screen (or the Maintain Asset G/L Book Info and/or the Maintain Asset Other Books Info screens), as applicable.

(You can also specify a salvage percentage as a default in the G/L Book Info and/or Other Books Info subtasks of the Maintain Asset Template Info screen.)

If you do not select this checkbox, the system will ignore any salvage value amount(s) displayed in the Asset Master record before depreciation calculations begin. In this circumstance, the value in the Amount to Depreciate field(s) in an Asset Master record should be equal to the value in the Total Cost field. (For the Other Books Info subtask, the value in the Amount To Depreciate field should be equal to the Cost field for each applicable book.)

Refer to the specific examples below, each of which illustrates a different way in which to handle salvage value relative to the computation of depreciation based on years:

Example 1

This example illustrates the setup for the condition in which salvage value is subtracted before depreciation calculations. This is the most common methodology for computing depreciation when there is salvage value assigned to an asset.

Depr Method: SL5 (Straight-Line Method over 5 years)

Total % to Depreciate = 100%

Subtract Salvage Value Before Calculation = "Checked" for depreciation method "SL5."

Note:  For this example, Costpoint subtracts the salvage value from the asset's total cost to determine the amount to depreciate (10,000 - 1,000 = 9,000). Note that the residual amount is spread uniformly across all years of useful life ($200 per year for 5 years).

To determine annual depreciation, the system multiplies the amount to depreciate by the depreciation percentage for the appropriate year of life.

Example 2

This example illustrates the setup for the condition in which salvage value is not subtracted before depreciation calculations.

Depr Method: SL5 (Straight-Line Method over 5 years)

Total % to Depreciate = 100%

Subtract Salvage Value Before Calculation = "Unchecked" for depreciation method "SL5."

Note:  In this example, the system ignores the salvage value from the asset's total cost when determining the amount to depreciate (10,000 - 0 = 10,000). To determine annual depreciation, the system multiplies the amount to depreciate by the depreciation percentage for the appropriate year of life.

Example 3

Depr Method: SL5 (Straight-Line Method over 5 years)

Total % to Depreciate = 90%

Subtract Salvage Value Before Calculation = "Unchecked" for depreciation method "SL5."

Note:  This example illustrates the only method available that recognizes the residual (salvage) amount in the last year of useful life. Note that only 90% of the asset was set up for depreciation when the depreciation method was defined.

Auto Calc

Select this pushbutton to open the Auto Calc subtask, where you can have the system calculate the depreciation percentage data using standard depreciation methodologies.

Table Information

The system stores data entered in this screen in the DEPR_MTHD (Depreciation Method)and the DEPR_MTHD_YRS (Depreciation Method Years) tables.