Asset Depreciation Methods
The Asset Management application lets you define the types of depreciation methods that are required for managing your enterprise's assets. It defaults to using the straight-line method, but you can add other methods and their respective calculations as needed.
Configure the types of depreciation on the Methods tab in
. Determine how the costs of assets are distributed, either based on time or use and using a regular or accelerated rate.If you track multiple companies in Vantagepoint, you must run depreciation processing separately for each company. Depreciation only applies to assets that belong to the active company.
- Straight-line: Use this method to calculate depreciation based on the cost of the asset being reduced by an equal amount in each accounting period. This occurs over the asset's useful life. Straight-line depreciation is frequently used when the asset's usability remains static regardless of its age.
For example, if an asset's value is $20,000.00, the useful life is 4 years, and the expected value at the end is $5000, the depreciation is $3,750. This is calculated as follows:
Criteria Calculation Asset's value $20,000 Useful life 4 years Expected value at end of cycle $5,000 Depreciable amount = $15,000 $20,000 - $5,000 Yearly depreciation = $3750 $15,000 / 4 -
Sum of the years' digits: Use this accelerated depreciation method when assuming that the asset is more productive when it is new. In other words, the depreciation is greater in the earlier years of the asset's useful life and less in the later years. However, the total amount of depreciation over the asset's useful life does not change.
Sum of years' digits uses the following calculation for depreciation: Depreciable base x (Remaining useful life / Sum of years digits).
For example, a piece of equipment is purchased for $160,000, the useful life is 5 years, and the expected valued at the end is $10,000. Because the equipment will be sold at the end of five years for $10,000, the total depreciable cost is $150,000.
The digits of the years are summed. 1 + 2 + 3 + 4 + 5 = 15. The sum of the years is then used in the calculation as follows:Year Depreciation Amount per Year 1 5/15 of $150,000 = $50,000 2 4/15 of $150,000 = $40,000 3 3/15 of $150,000 = $30,000 4 2/15 of $150,000 = $20,000 5 1/15 of $150,000 = $10,000 Sum $150,000
- Related Topics:
- Depreciation Methods Examples
Vantagepoint is set up to use the straight-line method of depreciation, but you can set up additional methods for calculating depreciation. - Straight-line Method Example
The Asset Management application comes set up to calculate the straight-line method of depreciation. Use this method to calculate depreciation based on the cost of the asset being reduced by an equal amount in each accounting period over the asset's useful life. - Sum of Years Digit Example
Use the Sum of Years Digit method when the asset is more productive when it is new and therefore depreciation should be accelerated. - Modified Accelerated Cost Recovery System (MACRS) Example
Use the MACRS tax depreciation method to recover the capitalized cost (basis) of tangible property that was placed in service after 1986.