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Depreciation

Release 12 Oracle Asset Management Fundamentals

Copyright © 2007, Oracle. All


All rights
rights reserved.
reserved.
Objectives

After completing this module, you should be able to do


the following:
• Discuss the process flow that Oracle Assets uses
to calculate depreciation
• Identify the key setup requirements required for the
calculation of asset depreciation
• Discuss the role that depreciation methods and
conventions play in the calculation of asset
depreciation
• Discuss the running of asset depreciation
• Explain the use of projecting depreciation expense
• Describe the forecasting depreciation analysis
feature

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Agenda

• Depreciation Setup
• Depreciation Methods
• Prorate Conventions
• Running Depreciation
• Depreciation Projections
• Forecasting Depreciation
• Depreciation Override

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Elements of Depreciation

Prorate
Convention
Prorate
Asset Books
Calendar

Depreciation Depreciation
Method Calendar

Depreciation Depreciation Units of


Ceilings Measure

Investment Price
Optional
Tax Credits Indexes Elements

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Depreciation Setup Areas

Asset
(N) Setup > Asset System > Book Controls
Books

Calendars (N) Setup > Asset System > Calendars

Depreciation
(N) Setup > Depreciation > Methods
Methods

Prorate (N) Setup > Asset System > Prorate


Convention Conventions
(N) Setup > Financials > Units of Measure
(N) Setup > Depreciation > Ceilings
Optional
(N) Setup > Depreciation > ITC
Elements
(N) Setup >Asset System >Price Indexes

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Basic Depreciation Calculation
Prorate Prorate
Convention Calendar Prorate
FOL Month Period
May
Apr 1
15
Prorate Date
Date Placed in Get
Service Rate
Journal
Entry R = 20%
Depreciation
Expense per
period
Rate Table

Depreciation Calendar,
Divide Depreciation Annual
flag, and Depreciate Depreciation Multiply by Cost
When Placed in Service or Net Book Value
flag

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Depreciation Methods

Year 1 Year 2 Year 3


Life-Based 60% 30% 10%

Year 1 Year 2 Year 3


Flat-Rate 33% 33% 33%

Year 1 Year 2 Year 3


Units-of-
Production 10M 14M 11M
Barrels
Capacity 100M Barrels

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Using the Life-Based Method

Year 1 Year 2 Year 3


Life-Based 60% 30% 10%

Table: Oracle Assets gets the annual depreciation


rate from a rate table.
Calculated: For straight–line depreciation, the
depreciation program calculates the annual
depreciation rate by dividing the life (in years)
into one.

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Life-Based Method Terms
Term Definition
Prorate period The period where a prorate calendar
maps a prorate date (Prorate
convention assigns a date placed in
service to a prorate date)
Depreciation Each prorate period corresponds to
a rate table per fiscal year of asset
life
Annual Total annual depreciation =
Depreciation Depreciation rate x depreciable basis
Depreciable basis = Cost or
Beginning net book value – Salvage
value
Depreciation Annual depreciation allocated from
expense per the service date or prorate date to
period fiscal year end, based on the
Depreciate When Placed in Service
flag

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Life-Based Method Example

Recoverable Cost $ 50,000


Method = 200%DB 5 Year Life
Placed in Service 15-MAR-YYYY
Fiscal Year is January 1 to December 31
Depreciation and Prorate calendars are
Monthly
Prorate Convention is Following Month
200% DB Rate Table
Prorate Periods
Year 1 2 3 4 5 6 7

1 .4000 .3667 .3333 .3000 .2667 .2333 .2000

2 .2400 .2533 .2667 .2800 .2933 .3067 .3200

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Using the Flat-Rate Method

Year 1 Year 2 Year 3


Flat-Rate 33% 33% 33%

Basic Rate or Adjusted Depreciation Rate:


Adjusted rate = Basic rate × (1 + Adjusting rate)
Bonus Rule: Depreciation rate = Adjusted rate + Bonus rate
Enter a bonus rule if your country allows additional
depreciation in early years of asset life.

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Flat-Rate Method Example

Net Book Value is $ 18,000


Method = Flat-rate
Placed in Service 15-APR-YYYY
Fiscal Year is January 1 to December 31
Depreciation and Prorate calendars are
Monthly
Prorate Convention is Following Month
Depreciate When Placed in Service flag is
checked Yes
The basic rate is 10%, the adjusting rate
is 10%, and the bonus rate is 5%.

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Using the Units-of-Production Method

Prorate
Nov convention Enter production
21 Dec amounts
1
Date placed
in service Prorate date

Rate =
Production/Capacity
Depreciation
expense per period X

Multiply by
depreciable
basis

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Units-of-Production Method Example

An oil well has a recoverable cost of $300,000,000


The capacity is 10,000,000 barrels
The production for SEP-YY is 100,000 barrels
Calculate the depreciation for SEP-YY

Depreciation = (Production this Period/Capacity) ×


Recoverable cost
SEP-YY Depreciation = (100,000/10,000,000) × $300,000,000 =
$3,000

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Entering Production Information

Manual Entry

Enter
Production
Information

FA_PRODUCTION_INTERFACE
via Upload Production Program

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Units-of-Production Method Production Amount
Restrictions

Production Amount Restrictions


The start date and end date you enter to which
production amounts apply must fall within a single
depreciation period in Oracle Assets.
You cannot enter production for dates before the
asset’s prorate date in the corporate book or for a
period for which you have already run depreciation.
You cannot enter production for periods prior to the
current open period in your corporate book.
You also cannot enter production for date ranges
which overlap.
You cannot enter production for a construction–in–
process (CIP) asset before you capitalize it.
You cannot enter or upload units of production assets
with accumulated depreciation.

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Units-of-Production Method Restrictions

Corp Tax

Method Restrictions

You can change the method from calculated, table, or


flat–rate to production only in the period you add the
asset.
An asset can have a production method in the tax
book only if it has a production method in the
corporate book.
You can change the depreciation method from
production to calculated, table, or flat–rate type in the
corporate book only if the asset does not use a
production method in any associated tax book.
An asset can have any kind of method in the tax book
and a production method in the corporate book.

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Units-of-Production Capacity Restrictions

Capacity Restrictions

The capacity must be the same in all books in which


the asset uses a production method. You change the
capacity in the corporate book.
Mass Copy copies the capacity adjustment to each tax
book regardless of the Copy Adjustments and Allow
Amortized Adjustments flags for the tax book.
If the book does not allow amortized adjustments,
Mass Copy copies the adjustment as an expensed
adjustment

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Prorate Conventions

Date Placed in Service


01-APR-YYYY

Prorate Convention Prorate Date


Following Month 01-MAY-YYYY
Mid Month 15-APR-YYYY

Month 01-APR-YYYY
Half-Year 01-JAN-YYYY

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Run Depreciation Process

Run Depreciation - Run Depreciation -


Initial Status New Additions Only

Next Period Close


Opened Period?
Yes

No

Yes No
Rollback
Depreciation?

Ready to Create
Journal Entries

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Depreciation Program Processes

Running depreciation starts the


following program processes:

Generate Accounts

Calculate Gains and


Losses

Depreciation Run

Reserve Ledger
Reports

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Rollback Depreciation

Run depreciation

Rollback
Handle
depreciation and
exceptions
make corrections

Run depreciation
and close period

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Projecting Depreciation for
an Asset

Q4

Q3

Annual Budget
Q2
$40,000
Q1
$30,000

$20,000

$10,000

0
Q1 Q2 Q3 Q4

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Defining a Projection

Run Projection

Asset

Year 1: $12,000
Depreciation
Year 2: ? Projection Report

Year 3: ?
Estimated
Year 2: $9,000
Year 3: $6,000

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Depreciation Forecasts

What would be the effect on depreciation


expense for all assets in the category
COMPUTER-PC in my corporate asset
book, if I change the depreciation method
from STL 5 to STL 3?

What is the most advantageous


depreciation method for an asset I am
going to add 3 months from now?

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Using Depreciation Override

FA_DEPRN_OVERRIDE

Load Table Override


Amounts

Run Depreciation Depreciation

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Useful Depreciation Reports

REPORT NAME PURPOSE


Assets Not Assigned To find assets not assigned to
to Any Books Listing any depreciation books. Sorted
by asset number
Assets Not Assigned To find assets not assigned to
to Any Cost Listing any cost centers. Sorted by
book and asset number
Diminishing Value Lists assets using a diminishing
Report value depreciation method.
Expensed Property Lists expensed assets.
Report Classified under noncapitalized
asset categories.
Fully Reserved Lists assets that became fully
Assets Report depreciated in a range of
accounting periods.

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Useful Depreciation Reports

REPORT NAME PURPOSE


Nondepreciating To locate nondepreciating
Property Report property.
Production History To review production amounts.
Report Sorts by unit of measure, asset
number, and production start
date.
Depreciation To review projected depreciation
Projection Report expense. Sorted by cost center,
expense account, and total
depreciation for each balancing
segment.
What-If Depreciation To display and analyze
Analysis Report depreciation projection data
based on hypothetical
depreciation parameters.

Copyright © 2007, Oracle. All rights reserved.


Summary

After completing this module, you should now be able


to:
• Discuss the process flow that Oracle Assets uses
to calculate depreciation
• Identify the key setup requirements required for the
calculation of asset depreciation
• Discuss the role that methods and conventions
play in the calculation of asset depreciation
• Discuss the running of asset depreciation
• Explain the use of projecting depreciation expense
• Describe the forecasting depreciation analysis
feature

Copyright © 2007, Oracle. All rights reserved.