Impacts on change of depreciation key in the asset master
If a person changes a depreciation key in the asset master without knowing the effects will result in improper depreciation posting or may not be up to the correct requirements. One must need to know the impact or effects before changing a depreciation key. Let me answer your question.
If I change a depreciation key in the middle of the current fiscal year and depreciation value for the year only should change.
A Machinery purchased for 1,00,000 Rs on 01.04.2010 and depreciation key is set to be S1(Straight line method at 10%), fiscal year is april to march.
Cost of machinery – 1,00,000
Depreciation for fiscal year 2010 – 10,000
Depreciation for fiscal year 2011 – 10,000
Depreciation for fiscal year 2012 – 10,000
Current book value of an asset is 70000 as on 01.04.2013, now depreciation key is changed to S2 which is 15 percent. Only for the current year, depreciation should be 15,000. How to do?
First check the Asset year end closing has been done for previous year, in case, if it is not done, the adjusted depreciation value will also reflect in the previous years as planned value and later if you do depreciation run, the values will be posted in the last period for the previous fiscal years. Hence do the asset year end closing. Now change the depreciation key. Once after changing the depreciation key, system will recalculate the depreciation for the whole fiscal year and adjusted value will be posted in the current month. Let me guide you with an example.
Let us take the above example; Current book value of an asset is 70000 as on 01.04.2013.
Depreciation posted for period 1 – 833.33 (10 % depreciation on straight line method)
Depreciation posted for period 2 – 833.33 (10 % depreciation on straight line method)
Depreciation posted for period 3 – 833.33 (10 % depreciation on straight line method)
Now there is change in the depreciation key (depreciation is made for 15% on straight line method). System will recalculate the entire depreciation for the fiscal year.
Total depreciation value for the current fiscal year is 15,000
Already posted value for three periods – 2500
Planned value should be 15000/12 = 1250. 1250 x 3 periods = 3750
During the 4th period = 3750 – 2500 = 1250 is still to be posted. 4th month depreciation is 1250. So, total depreciation value to be posted during the current month is 2500 which you can see in the planned value.
Once after the depreciation run is done, 2500 will be posted in the 4th month. From the 5th month, planned depreciation will be 1250.
This is how it works, I explained in easy way by using Straight line method. Always remember that, before changing a depreciation key, check your asset fiscal year closing.
Hello Sudhir,
Really Good doc but please maintain/add the below stated clarity.
What is the effective date of new depreciation rate i.e. 15% ? Is it from 01/04/2013 onwards or 01/07/2013? If the new rate eff. date is from 01/04/2013 onwards mean now we are in first period of new asset fiscal year ( April- Mar yr) so no need to maintain the diff. amount of depreciation of these 2 rates.If the effective date of new rate is from 01/07/2013 onwards mean we need to record the diff. depreciation amount of those 2 rates for the past 3 periods of this fiscal year i.e. 01/04/2013-30/06/2013
Thanks alot for sharing this info 🙂
Regards,
Lakshmi S
Thanks Lakshmi,
Please go through the document, your answer is answered.
Hi Sudhir
Thanks for sharing usefull document.
Regards
Diwa
Thanks a lot Diwa.
thanks
SKKS
Hi Sudhir,
Good document.
However, please address the below to have a complete document.
What if the percentage of Depreciation is reduced from 10% to 5% in the mid year? How will the system behave?
And I have one more question - let us say we are in 9th period and as per your example depreciation 7500 (10000/12*9) is posted and later business wants 5% dep for complete year - then how the excess depreciation already charged by the system will be adjusted.
If you can cover these scenario in the document that will help better.
Regards,
Narin Kamuni
What if the percentage of Depreciation is reduced from 10% to 5% in the mid year? How will the system behave?
Let us take an example:
1,20,000 Book value as of fiscal year start,
10 % depreciation on straight line method for 6 months posted - 6,000
Now changing of depreciation key in 7 period as 5%, So actual depreciation till 7 periods will be 3500 , So during depreciation for 7th period will be 6000 - 3500 = -2500
2500 Rs will be posted as credit in the depreciation account.
same type of result for your one more question
Thanks
Sudhir Krishna Kumar Singh
Thanks Sudhir...
You are welcome
Thanks Sudhir,
It's really nice explanation.
I have a query: Normally when we change the Dep. key the difference amount adjusts on pro-rata basis in the coming dep. runs. I mean the amount will be adjusted in the coming periods to that year.
My query here is - Do we need to make any extra setting to post the diff amount in the next Dep. run itself?
Regards,
Ram
Thanks Sudhir.
Regards,
Dhruval Vaishnav
Thanks Dhruval 🙂
Good one.
Thanks
Thanks Raja 🙂
Sudhir Krishna Kumar Singh,
Thank you for sharing your knowledge !!!
Very nice Document
With regards,
Ganesh
Thanks a lot Ganesh
Dear Sudhir,
Good one Nice Explanation.
Precaution that we need to change Asset Fiscal Year Change was mandate which you mentioned was very good. Thanks for your Efforts.
Thanks a lot Shaik
Nice Document! Keep it up!
I have got a different scenario. Please share your inputs how to take care of this.
We shall take the same example. The differential depreciation in the initial three years of Rs.15,000/- should be posted along with the current depreciation of Rs.15,000/-. That means, Rs.30,000/- should be posted in 2013 and then Rs.15000/- per year from 2014 onward.
Thanks you