Depreciation Calculation Methods

Various depreciation calculation methods are mentioned below:

i. Base Method
ii. Declining Balance Method
iii. Maximum Amount Method
iv. Multi Level Method
v. Period Control Method

i.
Base Method
Base Method- SPRO> IMG> Financial Accounting (New)> Asset Accounting>Depreciation>
Valuation Methods> Depreciation Key> Calculation Methods>Define Base Methods
Base method primarily specifies:
The Type of depreciation (Ordinary/ Special Depreciation)
Depreciation Method used (Straight Line/ Written Down
value Method)
Treatment of the depreciation at the end of Planned useful life of
asset or when the Net Book value of asset is zero (Explained in detail later in other related
transactions ).
ii.

Declining Balance Method

Enter Transaction code AFAMD- Change View Declining Balance Method
AFAMD- Change View Declining Balance Method- SPRO> IMG>
Financial Accounting (New)> Asset Accounting>Depreciation> Valuation
Methods> Depreciation Key> Calculation Methods> Define Declining-Balance
Methods
This is the other name of Written Down Value (WDV) method as mentioned in Base
method above.
If the WDV method is specified in Base method then the following additional settings in
this method can be used:
A multiplication factor for determining the depreciation percentage
rate. The system multiplies the depreciation percentage rate resulting from the total useful life by this
factor.
A lower limit for the rate of depreciation. If a lower depreciation
percentage rate is produced from the useful life, multiplication factor or number of units to be
depreciated, then the system uses the minimum percentage rate specified here.
An upper limit for the rate of depreciation.If a higher depreciation
percentage rate is produced from the useful life, multiplication factor or number of units to be
depreciated, then the system uses the maximum percentage rate specified here.

iii.

Maximum Amount Method

Maximum Amount Method- SPRO> IMG> Financial Accounting (New)>
Asset Accounting>Depreciation> Valuation Methods> Depreciation Key>
Calculation Methods> Define Maximum Amount Method
Generally, If we uses Straight line method, then depreciation amount should be same for
all years. But depreciation on asset is subject to change due to many factors e.g. any
addition to the asset, change in estimate of useful life, change in estimate of scrap value
etc.
So for maintaining better control on the amount of depreciation, SAP has provided this
method where we can specify the maximum amount that can be charged as expense in a
particular year. If this is specified, user will not be able to post depreciation exceeding the
amount specified here.

iv.

Multi Level Method

Enter Transaction code AFAMS- Change View Multilevel Method
AFAMS- Change View Multi Level Method- SPRO> IMG> Financial
Accounting (New)> Asset Accounting>Depreciation> Valuation Methods>
Depreciation Key> Calculation Methods> Define Multi Level Methods
As the name itself suggests, this method provides the flexibility to specify different rate of
depreciation for different years/periods. E.g. in some cases depreciation rate required is
different in initial years and after that the rate should be changed. This can be achieved
in SAP by using Multi level Method.
In this method, SAP provides us the possibility to specify different levels during the useful
life of an asset. Each level represents the period of validity of a certain percentage rate of
depreciation. This percentage rate is then replaced by the next percentage rate when its
period of validity has expired. We can specify the validity period for the individual levels of
a asset in years and months.
It also provides the flexibility to us to choose the defined validity period, which can begins
with
The capitalization date.
The start date for ordinary or tax depreciation.
The original acquisition date of the asset under construction.
The changeover year.

v.

Period Control method

Enter Transaction code AFAMP- Maintain Period Control Method
AFAMP- Maintain Period Control Methods- SPRO> IMG> Financial
Accounting (New)> Asset Accounting>Depreciation> Valuation Methods>
Depreciation Key> Calculation Methods> Maintain Period Control Methods
It is one of the most relevant method to keep control on the calculation of depreciation.
Here we mention the different rules for periods in case of different scenarios for assets.

This method controls the period for which the depreciation is calculated on an asset
during the year.
Under this method, we can specify the period for which the depreciation should be
calculated in case of :
Acquisition of Asset/Subsequent acquisition
Retirements/Scrap
Sales/Transfers
Upward/Downward Revaluation

There are some standard methods that has been provided by SAP e.g. Pro rata at
mid period, Pro rata at period start date, at the start of year or At mid year etc. E.g., If
client requires to depreciate an asset from the First day of the year in which the asset is
capitalised, we can use the method `At the start of the Year` in case of Acquisition.
This method has been explained with the help of one comprehensive example below:

1.
2.
3.
4.

Example: A company wants to charge depreciation as follows. Client follows calendar year
from January-December 2013 as
Accounting/Fiscal year.
In case of Asset Acquisition: Depreciation should start from the First day of
the year in which asset is acquired.
In case of Asset Addition: Depreciation should start from the Ist day of period
of date of addition.
In case of Asset retirement: Depreciation should be charged upto Mid period
regardless of date of retirement.
In case of Asset Transfer: Depreciation for the full year should be charged by
the transferee company.

After having knowledge of all the depreciation calculation methods, we can assign the
depreciation calculation methods to the depreciation key.
Creation of Depreciation key:

o
o
o
o

Asset accounting module of SAP calculates the depreciation on Assets based on the
configuration done for Depreciation key. Depreciation Key basically contains the calculation methods
which in combination control the following:
Period for which Depreciation is charged
Method of Depreciation
Scrap value, if any
Planned change in Method of Depreciation

We enter a separate depreciation key for each depreciation area in the asset
master record.
Creating Depreciation Key:
Enter Transaction code AFAMA- Change View Depreciation Key
AFAMA- Change View Depreciation Key- SPRO> IMG> Financial
Accounting (New)> AssetAccounting>Special Valuation> Net Worth Tax>Depreciation
Key>Define Depreciation keys
As depreciation key is Chart of Depreciation dependent, system will prompt to
enter chart of Depreciation on accessing transaction AFAMA and screen shown
below will be displayed.

Here, we need to specify the following at appropriate fields\check boxes:

No./Name of Depreciation key Numeric/Alphanumeric.
Maximum Amount method (Discussed above in methods of depreciation)
Cutoff value key to control the scrap value if no absolute scrap value is
maintained in the system. The cutoff percentage rate that is determined on the basis of this cutoff
value key is only used by the system when:
There is no absolute scrap value entered in the the depreciation
areas of the asset concerned (an absolute scrap value takes precedence over a cutoff percentage
rate)
Negative book value is not allowed for the asset
Whether ordinary depreciation should continue to be charged in a year in
which special depriciation is also charged on the asset or not?
Set `Depreciation to the day` indicator to allow system to calculate the
depreciation according to the number of days the asset is used.
If this indicator is set, period control method assigned to depreciation key will be ignored
and Asset value date will be considered as the depreciation start date.
Assignment of Depreciation Calculation Method to Depreciation key:
Select The depreciation key and click on Assignment of Calculation methods. Now assign
different methods to depreciation key.

Depreciation is run in background and dep postings will be done on background

job.