Depreciate fixed assets

Find this screen

Open: Nominal > Fixed Assets > Depreciate Asset

How to

Depreciate fixed assets

Open: Nominal > Fixed Assets > Depreciate Asset

A list of active assets with some Net book value is displayed, showing the Code, Description, Last Depreciated date and Depreciation Method. The Depreciation Amount is populated when you select the asset.

Note: If you are depreciating annually, and the Last Depreciated date is within this financial year, the asset will not be shown in the list because it has already been depreciated. Also, if the asset is being depreciated using a straight line depreciation method, the asset will not be listed if the Net book value is less than or equal to the Residual value.
Select the Depreciation Period.

This is the period up to which you want to calculate depreciation. This defaults to the current period but you can select a future period if you want. You may, for example, have assets that are depreciated monthly but that you want to post quarterly. All postings that are in future periods are posted into and held in the deferred postings file until the period becomes current.

Note: If you are depreciating by period, an asset won't be listed if it has already been depreciated in the Depreciation Period you have selected.
Select the assets that you want to depreciate.
Click Depreciate.
Select the Depreciation Transaction Date.

This is the date you are depreciating the assets. This defaults to today's date.

If you are depreciating by period, the nominal postings will have the end date of each period you are posting for. The Last Depreciated date on the asset will be the end date of the last of these periods.

If you are depreciating annually, the nominal postings will have the end date of the last period in the year. The Last Depreciated date on the asset will be the end date of the last period in the year.
To depreciate, click Depreciate.

Useful info

About depreciation

You can use the following methods of depreciation:

Straight Line

The asset's value is reduced by a percentage value that is based on the Initial Value, the Residual Value and the Asset Life span in years or periods until the Net Book Value is reduced to the Residual Value (which may or may not be zero). The value of depreciation remains the same each time.

This is appropriate if you forecast that use of the asset is spread evenly across the time period, for example, the use of a temporary prefabricated building.

See an example

If you enter an asset with an Initial Value of £12000, a Residual Value of £3000, and you want this to be depreciated over a three year period:

Year	Depreciation Calculation					Depreciation Amount	Net Book Value
	Initial Value		Residual Value		Asset Life in years
1	12000	-	3000	/	3	£3000	£9000
2	12000	-	3000	/	3	£3000	£6000
3	12000	-	3000	/	3	£3000	£3000

If this was by period, the initial value would be divided by the number of periods in the three years, for example 36 if you were using 12 periods per year, in order to give a periodic depreciation amount. In this example that would be £250. Each period that passed the net book value would reduce by that amount.

Note: Straight Line depreciation is applicable if the value of the asset is to be reduced evenly over time (e.g. furniture).

Reducing Balance

The asset's value is reduced by a percentage of the Net Book Value (which reflects the asset's current worth) every year or period until it is reduced to a realistic scrap or write off value (which may or may not be zero). The value of the depreciation reduces every time. This is appropriate if you expect the asset to wear out quickly.

Note: Reducing Balance depreciation is applicable if the value of the asset needs to be reduced quickly at first and more slowly later (e.g. vehicles).

See an example

If you enter an asset with an Initial Value of £12000, the initial Net Book Price is £12000 and you want to depreciate this over four years, this would be a depreciation of 25% each year.

Year	Depreciation Calculation					Depreciation Amount	Net Book Value
	Net Book Value		Depreciation Percent
1	12000.00	*	25	/	100	£3000.00	£9000.00
2	9000.00	*	25	/	100	£2250.00	£6750.00
3	6750.00	*	25	/	100	£1687.50	£5062.50
4	5062.50	*	25	/	100	£1265.63	£3796.87

Note: Depreciation of an asset using the Reducing Balance method is higher initially than the Straight Line method and it then reduces over the asset life. Theoretically, using the Reducing Balance method, the book value will never reach zero but for all practical purposes, the write off value of an asset is reached by using a realistic percentage.

Fix it

I need to change the depreciation details

You can't amend depreciation details for an asset once you have posted depreciation for the asset. If you need to amend the depreciation method you can:

Dispose of the asset and delete it, then add it back with the correct depreciation method.

Remember that Professional Accounting Standards require a good reason for you to do this. Moving from one method of depreciation is not normally permitted, but on the grounds that you need to change so as to provide a truer and fairer view it may well be permitted. In this case you would need to consider at what point to make the change. It will involve disposing of the asset, deleting the asset and then adding it again with the correct depreciation details.

You may need to adjust the asset and depreciation accounts in the Nominal Ledger to reflect the changes for the current financial year, so you may require to post journals between these two accounts. If you need to reflect adjustments in last year's accounts, then you can use the Prior Year Journal feature, but remember that any such adjustments are only reflected in the Nominal Ledger and not in the Fixed Assets register.

I need to change the nominal accounts being posted to

You can't amend the nominal accounts being posted to once you have posted depreciation for the asset. If you need to change the accounts you can:

Dispose of the asset and delete it, then add it back with the correct nominal accounts selected.
You may want to make the appropriate nominal journals between the incorrectly used nominal account and the correct nominal account.

What happens when I

Depreciate fixed assets

Depreciating your assets ensures that your company's Profit and Loss and Balance Sheet accounts are updated with accurate depreciation values.

The depreciation amount is calculated from the Depreciation method.
The depreciation value is subtracted from the asset's Net book value.
The asset's Last Depreciated date is updated.

Note: This posts for the current year or period in the current year, not for previous years, regardless of the Date acquired.
Nominal postings are made as follows:
- Annual depreciation methods: A single nominal posting is made for annual depreciation at the end of the financial year.
- Period depreciation methods: A posting per period depreciated.
- The depreciation amount is credited to the asset's Balance sheet account.
  
  Note: If you dispose of an asset before the posting is credited to the Balance sheet account, the Net book value reflects the amount remaining to be credited to that account. Thus the disposal will only post the remaining amount and not 'double post' any value.
- The depreciation amount is debited to the asset's Profit and loss account.
A fixed asset transaction posting is also made. This contains the following information:

Reference	The asset code.
Narrative	The description, Depreciation of asset.
Transaction Date	The date you specify.
Transaction Type	This is type Depreciation.
Accounting Period	The accounting period in which posting (and depreciation) will be made.
Old Net Book Value	The old net book value.
New Net Book Value	The new net book value.
User name	The user name.
User number	The user number.
URN	The transaction unique number.
Posting Value	The net book value posted.

Annual Straight Line	Initial Value - Residual Value / Asset Life in years
Period Straight Line	Initial Value - Residual Value / Asset Life in periods

Annual Reducing Balance	Net Book Value * Annual Depreciation %
Period Reducing Balance	Net Book Value * Period Depreciation %