Depreciation Overview

DEPRECIATION

Calculate Depreciation

Review Depreciation Calculations
Print Depreciation Report

Review Depreciation History
Print Depreciation History Report

ALTERNATE DEPRECIATION

Calculate Alt. Depreciation

Review Alt. Depreciation Calculations
Print Alt. Depreciation Report

Review Alt. Depreciation History

'UNDO' UTILITIES

Clear Unposted Depreciation
Depreciation Reversal Utility - Standard posted Straight Line depreciation only

Depreciation of Fixed Assets Overview
The Rental Management System includes the ability to depreciate the Fixed Assets.
Each rental item has a Fixed Asset Tag or Tags which are accessible in Rental Inventory and contain the 'Net Original Cost' and the 'Depreciation Class', which are used for the Depreciation Run.

Two types of depreciation can be tracked for each product, standard (or book value) and alternate depreciation.
Alternate depreciation can be used for tax or management purposes. The number of times depreciation is run per year should be the same for both types of depreciation. This is because once disposal of rental products is completed in Allocate Bulk Disposals, they are removed from the depreciation run, whether standard or alternate.

When the Calculate Depreciation program is run for Declining Balance, Straight Line, MACRS, and Flat Rate methods, the calculations are stored in a temporary Edit file so that the resulting values may be reviewed individually in Review Depreciation Calculations.
For products using the "Percent of Rental Revenue- NO Post" (Method Code #), the depreciation calculation transactions are written to Review Depreciation Calculations when the revenue generating invoice is posted through Daily Close 2.
Refer to discussion on Depreciation Methods for details on this option.

When using a 'Straight Line 'method with a residual as percent setup in Depreciation Classes, the Depreciation Base To Exclude Residual flag in the Company Posting Parameters controls whether the depreciation calculation and alternate depreciation calculation are based on the full cost of the equipment, or on the cost of the equipment less the residual.

When satisfied with the amounts, the 'Depreciation Report' can be printed from Print Depreciation Report.
By accepting the Depreciation Report, the amount of depreciation from the Edit is used to update the Accumulated Depreciation on the Fixed Asset Tags.
The 'Declining Balance', 'Straight Line', 'Flat Rate', 'MACRS', and 'Percent of Rental Revenue-NO Post' methods of depreciation do NOT automatically post to the General Ledger, unless the processing is activated in the Company Posting Parameters.
If posting is not automatic, assess the depreciation amounts on the Depreciation Report and manually make a Journal entry in the General Ledger to the appropriate Depreciation accounts. Do this using Miscellaneous G/L Journals.

Note: When depreciation 'Method %' is used, G/L posting is done for the depreciated amount at the time the revenue posting is done in the Daily Close, skipping the Calculate Depreciation process.

The depreciation calculations are controlled by the parameters setup in Depreciation Classes as setup in the "Inventory" parameters on the Operations tab of Configure System Settings.
The Depreciation Class is used to determine the rate of depreciation, residual percentage and frequency of depreciation. Usually several Depreciation Classes are setup to achieve different rates of depreciation.

Prior to Depreciation :
To ensure that the asset tag and location quantities of rental products are equal run Verify Tag Qty = Loc Qty.
Fix the quantities in Rental Inventory or if the location quantities are correct fix the asset tag quantities in Update Fixed Asset Tag.

Print an inventory value report in Book Value Report and check the products.
Compare this to the value of inventory in your equipment on hand asset accounts using either Trial Balance or G/L/ Account Inquiry. The totals should be the same.
If they are not, check that the report value in Book Value Report is correct and contact your accountant as adjusting journal entries may be required.

Disposals of Rental Products and Depreciation
Prior to disposal of rental products, refer to the discussion on sale of rental products which have outlived their usefulness in Transfer Rental To Sale.
This method may suit some companies.

When any rental product has been sold, and the invoice is not yet posted in the daily close, the location quantity on hand in the product file reflects the sale but the asset tag quantity does not.

Once the invoice for the sale of a non-bulk product has been posted in Daily Close 1, Daily Close 2, and Daily Close 3, the sale is recorded in the asset tag and the product is removed from the depreciation calculations.
Therefore, before posting the sale of a non-bulk item in the daily close, complete the depreciation run (put the invoice on hold in Hold/Release Current Invoices if necessary).

However when the invoice for the sale of a bulk product has been posted, the product can still be depreciated.
Completing Allocate Bulk Disposals (and running Daily Close 2, and Daily Close 3) records the sale in the selected asset tag and removes it from the depreciation run.
Therefore, forward sales of bulk products can be completed and still depreciated, if Allocate Bulk Disposals has not been completed.
Refer to the discussion in the manual pertaining to Rental Inventory Value Report by location, because the quantity in the LOCATION has been reduced as soon as the invoice is generated, and this report will now be incorrect.
The Book Value Report will be correct when printed using the asset tag quantity.

Note: If the depreciation was not completed, and a non-bulk item has been sold and the invoice posted, or Allocate Bulk Disposals has been completed for a bulk product, then the sale will have to be credited at the same date and the credit note posted in order to run the depreciation successfully. The sale must then be re-entered. If a credit note was created for a bulk product, complete Allocate Bulk Disposals and Daily Close 2, and Daily Close 3 before continuing.

Preparing for Depreciation
Before running the monthly (or yearly) depreciation, complete the following preparatory steps:

Step 1

Run Daily Close 1, Daily Close 2, Daily Close 3, and Allocate Bulk Disposals for the appropriate month.

Step 2

Post all Accounts Payable invoices for rental inventory for the month.

Step 3

Check that all rental inventory has been assigned a Fixed Asset Tag. Run Verify Tag Qty = Loc Qty.
This report checks that the inventory quantities assigned to the Locations equal the total quantities entered on the Fixed Asset Tags. (It is possible to add quantity to a Location without setting up a Fixed Asset Tag for that quantity.) Only items which need to be fixed appear on the report.

Rental Inventory or Update Fixed Asset Tag can be used to make corrections to the tag information.

Note: If the discrepancy relates to the disposal of a rental product, and the invoice hasn't been posted yet, zero the quantity in the unposted invoice and fix the asset tag in Rental Inventory. If the invoice has been posted, create a credit (don't post it), fix the asset tag then delete the details off the credit, then delete the credit note.

Step 4

Check that your inventory values are accurate. Run Book Value Report and confirm that the Date Acquired, quantities, costs and accumulated depreciation amounts are accurate.

Step 5

Check that new items purchased this month were setup with the correct Depreciation Class. Run New Acquisitions Report using the option to Sort By Depreciation Class. The date range entered for the report should be for the current month. If corrections are required, use Rental Inventory.

If depreciation has NOT been run before, generate the report using From 01/01/1900 To today's date, to get a complete inventory listing by Depreciation Class. If a few corrections are required, use Rental Inventory. If there are many items that have NOT been assigned the correct Depreciation Class, use short-cut programs Change Depreciation Class On Tag or Change Depreciation Class On Tag By Cost to automatically assign a Depreciation Class to all of the products in a Product Class.

Check disposals for the period in Disposal Transactions Report and make sure that the products on the list are correct. Sales of bulk products do not appear on this report until the asset tag has been selected in Allocate Bulk Disposals.

The Depreciation Run
Once the preparatory steps outlined have been completed, follow these steps:

Step 1

Select Calculate Depreciation. This program calculates the depreciation amount for products using Declining Balance, Straight Line and Flat Rate methods, and stores the calculations as an Edit in Review Depreciation Calculations. Each time the Depreciation Calculation is run, the previous Edit is discarded for that class.
This is very useful when testing the depreciation run.

Note: To remove all unwanted depreciation calculations that have not yet been processed click the CLEAR button on Review Depreciation Calculations.

For products using the 'Percent of Rental Revenue- NO Post' (Code #) method, the depreciation amount is calculated as a % of the revenue every time an Invoice is generated for this product. A depreciation record is written to Review Depreciation when the Invoice is posted in Daily Close 2.

Step 2

The depreciation calculations can now be individually examined using Review Depreciation Calculations.
In Change mode, make adjustments if needed.
In Add mode manual entries which by-pass Calculate Depreciation may also be entered.
Any Depreciation records generated from 'Percentage of Rental Revenue - No Post' (Code #) can also be reviewed and edited in Review Depreciation Calculations.

Step 3

Select Print Depreciation Report to list the amounts calculated.
After printing the report, confirmation is required that the report printed ok before the depreciation is posted.
When accepted the amount of depreciation on the report is used to update the Fixed Asset Tags, viewable in the Accumulated Depreciation window on each relevant Tag in Rental Inventory, and the depreciation amounts are recorded in Review Depreciation History.

If the report is NOT accepted, then the report is considered an Edit only and may be reprinted or discarded.

Post Depreciation to the G/L:
A flag in the Company Posting Parameters, automates posting of depreciation to the General Ledger.
When the posting to the G/L option is activated, a Posting Summary report also prints from Print Depreciation Report and when this is accepted, the depreciation transactions are posted to the G/L as printed on the summary report.
The posting accounts for Accumulated Depreciation and for the Depreciation Expense, default by class, as setup in the Depreciation Accounts windows of Depreciation Classes.
The depreciation transactions post in summary by division.

Step 4

If your firm does NOT post depreciation directly to the G/L, use the Depreciation Report totals as your guide, and make a Journal entry to the General Ledger Depreciation Accounts.
This manual entry using Miscellaneous G/L Journals is required to update the General Ledger with the Depreciation.

Many firms prefer to manually control the values posted to the General Ledger, for 'Declining Balance', 'Straight Line', 'Flat Rate', and 'Percent of Rental Revenue- NO Post' (Code #) methods of depreciation for the following reasons:

• Many firms do not keep accurate fixed asset registers.
• Accumulated depreciation totals per item are not known.
• The original purchase date is not known.
• Depreciation figures are not entered into the system.
• The accountant controls the depreciation schedule according to current tax advantages.
• The accountant uses different accounting methods.

Note: When depreciation 'Method Percent' is used, G/L posting is done for the depreciated amount at the time the revenue posting is done for the Invoice, in the Daily Close.

The security by division feature as determined by Divisional Restricted Views, does NOT apply to the Asset Depreciation utilities.

Posting Control
The Calculate Depreciation, Review Depreciation Calculations, Print Depreciation Report, and Clear Unposted Depreciation programs are designed to be run by one operator at a time, by setting the Posting Control flag 'GLPF'.
If a second also operator tries to run one of the programs simultaneously, a warning will appear on the screen preventing the second user from proceeding because the 'GLPF' flag is locked.

If for some reason, such as improper software shutdown, the first operator does not exit one of these programs normally, then the Posting Control flag will not be reset automatically to allow the next person to run the program. The operator will not be able to proceed until the flag is reset in Reset Depreciation Posting Flag.