Asset Depreciation in Accentis Enterprise

KB429

Overview

This article explains how asset depreciation works in Accentis Enterprise: how it is calculated, how to understand it, and how to process it.

Contents

What is depreciation?

How is depreciation calculated in Accentis Enterprise?

Depreciation calculation in Accentis Enterprise: Depreciation Type

Depreciation calculation in Accentis Enterprise: Diminishing value preferences

Frequently Asked Questions

What is depreciation?

Depreciation is the reduction in value of Fixed assets over time. A Fixed Asset is generally considered to be an item which is being used to produce value for your business. This can encompass non-essentials such as a company car, as well as items which are necessary for your business to function, such as a desk and chairs. When the asset is bought, it will have a value that mirrors its cost, which will then decrease over time as the asset experiences wear and tear.

Think of it like this: If you buy a chair for $100 and use it every day for 5 years, you couldn’t then sell it for $100 because it has lost its value. You may not even find anyone that wants to buy it at all! This is called depreciation – the reduction in value of an asset until its value is $0.

How is depreciation calculated in Accentis Enterprise?

On the surface, the calculation of depreciation should be simple: it’s a rate (%) calculated against the value of the asset, to produce a number by which the asset’s value will decrease over a given period of time. However, there’s a bit more to it than that. When you process a depreciation for an asset, the calculation that Accentis performs will depend on your preferences, and the frequency at which you process depreciations. You will need to set calculation preferences for each asset, and system-wide to produce the result you expect. This should be done in consultation with your accountant.

Depreciation calculation in Accentis Enterprise: Depreciation Type

The most significant difference in depreciation calculation is determined by the Depreciation Type set on the Depreciation information tab of each Fixed Asset record. There are three options to choose from in this field, and which option you select depends on your preferences, what the asset is, and the recommendations of your accountant. These options are:

Selecting this option means that:

  • Each time the asset is depreciated, the Written Down Value (WDV) is depreciated by the percentage rate for the chosen period of depreciation (the depreciation rate ÷ 365 x the period you are deprecating).
    • The WDV that is used (Opening WDV or Current WDV) is selected within System Preferences. Details about this preference can be found further in this article.
  • The depreciation amount is calculated using the same rate but with the reducing Written Down Value, which will mean the depreciation amount is smaller with each deprecation transaction for a similar period.

Selecting this option means that:

  • The first time the asset is depreciated, it will depreciate the full amount of the asset (Depreciated prime cost value), leaving it with a Written Down Value of $0.00.

Selecting this option means that:

  • Each time the asset is depreciated, the total cost of the asset (Depreciation prime cost value) is depreciated by the percentage rate for the chosen period of depreciation (The depreciation rate ÷ 365 x the period you are depreciating).
  • The asset will depreciate by the same amount each time (depending on frequency) and will result in a Written Down Value of $0.00 once depreciated fully.

For more information on the types of depreciation as described by the ATO, see here.

Depreciation calculation in Accentis Enterprise: Diminishing value preferences

If your asset has a depreciation type of Dim. value, you will also need to select which Written Down Value is used for the depreciation calculation. This is a system-wide option and is selected in your Fixed Asset System Preferences.

This preference is entitled When depreciating a Fixed Asset using diminishing value, the calculations should be performed on the… and the options are as follows:

Selecting this option means that the depreciation is calculated using the CWDV of the asset. This produces the slowest depreciation when using the same depreciation rate, as it is compounding the depreciation exponentially. An example of how depreciation is calculated using the CWDV is this:

  • In July, you have an asset with an O/CWDV of $100, a Depreciation type of Dim. value and a Depreciation rate of 20%.
  • In October, you perform your quarterly depreciation for the asset, which means that the depreciation rate used will be 5%.
    • A rate of 5% against the CWDV of $100 means that it will be depreciated by $5, and the CWDV is now $95.
  • In December, you perform your next quarterly depreciation for the asset.
    • A rate of 5% against the CWDV of $95 means that it will be depreciated by $4.75, and the CWDV is now $90.25.
  • In March, you perform your next quarterly depreciation for the asset.
    • A rate of 5% against the CWDV of $90.25 means that it will be depreciated by $4.51, and the CWDV is now $85.74.
  • In June, you perform your final quarterly depreciation for the asset for the Financial Year.
    • A rate of 5% against the CWDV of $85.74 means that it will be depreciated by $4.29, and the CWDV is now $81.45.

A year’s worth of depreciation using the CWDV at a rate of 20% produces a total depreciation amount of $18.55 when the OWDV was $100.

Selecting this option means that the depreciation is calculated using the OWDV of the asset. This produces a faster depreciation than using the CWDV when using the same depreciation rate, as the asset is depreciated by the same amount each time. For example:

  • In July, you have an asset with an O/CWDV of $100, a Depreciation type of Dim. value and a Depreciation rate of 20%.
  • Performing quarterly depreciation will mean that the asset will be depreciated by 5% of the OWDV each time – and a rate of 5% against the OWDV of $100 means that the asset will depreciate by $5 each quarter.
  • In October, you perform your quarterly depreciation for the asset, and the CWDV is now $95.
  • In December, you perform your next quarterly depreciation for the asset, and the CWDV is now $90.
  • In March, you perform your next quarterly depreciation for the asset, and the CWDV is now $85.
  • In June, you perform your final quarterly depreciation for the asset for the Financial Year, and the CWDV is now $80.

A year’s worth of depreciation using the OWDV at a rate of 20% produces a total depreciation amount of $20.00 when the OWDV was $100.

Selecting this option means that the depreciation is calculated using the OWDV of the asset, plus any additions and revaluations that the asset has had. For example:

  • In July, you have an asset with an O/CWDV of $100, a Depreciation type of Dim. value and a Depreciation rate of 20%.
  • In October, you perform your quarterly depreciation for the asset, which means that the depreciation rate used will be 5%.
    • A rate of 5% against the OWDV+A of $100 means that it will be depreciated by $5, and the CWDV is now $95.
  • In December, you perform your next quarterly depreciation for the asset. The asset has had no additions or revaluations, so it will be depreciated by $5 again, and the CWDV is now $90.
  • In February, you obtain an addition for the asset valued at $50. The OWDV+A is now $150.
  • In March, you perform your next quarterly depreciation for the asset.
    • A rate of 5% against the OWDV+A of $150 means that it will be depreciated by $7.5 this time, and the CWDV is now $132.50.
  • In June, you perform your final quarterly depreciation for the asset for the Financial Year.
    • A rate of 5% against the OWDV+A of $150 means that it will be depreciated by $7.5 again, and the CWDV is now $125.

A year’s worth of depreciation using the OWDV+A at a rate of 20% produces a total depreciation amount of $25.00 when the OWDV was $100 with an addition of $50 after 6 months.

Note: This is not the same as depreciating by the Prime cost of the asset; the Prime cost is the CWDV plus any additions or revaluations and LESS the total depreciation to date. This option is still a diminishing rate as it uses the OWDV+A for the financial year and takes prior FY depreciation into account.

Each of these calculations produce a similar depreciation amount when the asset is worth such a small amount of money – there is only a $6.45 difference between the three different methods. However, when your assets are worth thousands of dollars, the different calculation options will produce much larger variances. It is important to consult your accountant regarding which of these options to choose.

Frequently Asked Questions

Yes, there is a command that can be used to change the depreciation type of the fixed asset. This command should only be used in limited circumstances, for example if an Asset has been set up incorrectly and no depreciation has been processed, or to change an asset to Full to write off the residual balance remaining from Dim Value. Before any changes are made a discussion should be had with your accountant to confirm this is the right course of action for your business.

If, after discussing with your accountant, you want to proceed with changing an asset's Depreciation Type, please contact Accentis Support for instructions on how to do so.

Yes, and when you have large assets such as company vehicles, this is often the performed as the years go by. A car will generally depreciate quickly in the first few years after its purchase and will then depreciate at a slower rate over the next few years.

You should not change the Depreciation rate of an asset without first consulting your accountant.

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Last edit: 15/02/24