Use this optional screen if you want the system to automatically calculate the depreciation percentage data using one of three common depreciation methodologies: straight-line, declining balance, or sum-of-the-years'-digits.
After you select the appropriate depreciation method and conditions to be used in the calculation, click the OK button. The system will calculate the appropriate percentage for each year and will display the results in the Table Window. Automatic system calculations can be overwritten as needed.
Because the main purpose of this subtask is to minimize manual data entry, you can use it whenever you set up depreciation methods as part of the initialization process or whenever you add additional depreciation methods., as desired.
Although you can add to, delete, or change the information produced as a result of the Auto Calc function at any time, use caution in the timing of your edits. Changes to the depreciation method codes setup data could affect the calculation of depreciation and produce unexpected results when you post depreciation to the General Ledger.
Use the options in this group box to select the depreciation methodology for which the system should automatically calculate the percentages for the years of useful life specified in the Years of Useful Life field.
Select this option if you want the system to calculate the depreciation percentages using straight-line depreciation methodology.
Straight-line methods of depreciation generate equitable periodic charges to expense over the estimated life of the asset.
If you also want to apply half-year convention methodology to this straight-line depreciation method, select the Use Half-Year Convention check box.
The Multiplier field and the Switch to Straight Line check box do not apply to this option and are therefore disabled.
Select this option if you want the system to calculate the depreciation percentages using declining-balance depreciation methodology.
Declining-balance methods of depreciation generally provide for greater depreciation charges to expense in the earlier years and gradually declining charges thereafter over the estimated life of the asset.
Specify the multiplier for the system to apply when calculating the percentages for the declining-balance method (for example, 1.5, 2.0, and so on) in the Multiplier field. A multiplier is an accelerated depreciation factor that the system uses to compute the depreciation year percentages for declining-balance methods. Your choice of factors will depend on the depreciation policies in place at your company. A commonly used multiplier of "2.00", for example, indicates a doubled rate of declining balance depreciation. You can enter a full range of other user-designated multipliers in this field. The system does not display a default multiplier in this field.
For a declining-balance depreciation method, the cost of a depreciable asset will never be entirely written off as long as the asset continues to be depreciated. The system provides for two alternative approaches to this situation, depending on whether you select the Switch to Straight Line check box. See the documentation for the Switch to Straight Line field below for details.
Select the Switch to Straight Line check box if you want the system to calculate straight-line percentages for beginning in the year in which the straight-line percentage is greater than the declining-balance percentage.
The Use Half-Year Convention check box does not apply to this option and is therefore disabled.
Select this option if you want the system to calculate the depreciation percentages using sum-of-the-years'-digits methodology. Sum-of-the-years'-digits methods, like declining-balance methods, are considered accelerated methods because higher depreciation charges occur in the earlier years and decline over the remaining life of the asset.
For sum-of-the-years'-digits calculations, the denominator of the fraction, which remains the same, is the sum of the digits representing the years of life. The numerator of the fraction, which changes each year, is the number of years of life remaining of the years for which depreciation is being computed. For example, for an asset with an estimated life of five years, the denominator is 5 + 4 + 3 + 2 + 1, or 15. For the first year, the numerator is 5, for the second year 4, and so on.
The Multiplier field and the Switch to Straight Line check box do not apply to this option and are therefore disabled.
Example of setup data and results for a sum-of-the-years' digits depreciation method
This check box is applicable only if you have selected the Straight Line option depreciation method option.
If you select the Straight Line option, you must also indicate a convention for use with this method which are "None" or "Half-Year".
A half-year convention option uses half of a normal year's percentage in the first and last years of useful life.
This field is applicable only if you have selected the Declining Balance depreciation method option.
Specify the multiplier for the system to apply when calculating the percentages for the declining-balance method (for example, 1.5, 2.0, and so on) in this field.
A multiplier is an accelerated depreciation factor that the system uses to compute the depreciation year percentages for declining-balance methods. Your choice of factors will depend on the depreciation policies in place at your company. A commonly used multiplier of "2.00", for example, indicates a doubled rate of declining balance depreciation. You can enter a full range of other user-designated multipliers in this field.
The system does not display a default multiplier in this field.
If you select the Declining Balance option, you must also indicate whether the system should switch to a straight-line percentages method beginning with the year in which straight-line percentages will be greater than those calculated using declining-balance methodology.
For a declining-balance depreciation method, the cost of a depreciable asset will never be entirely written off as long as the asset continues to be depreciated. The system provides for two alternative approaches to this situation, depending on whether you select this check box, as follows:
If you select this check box, full depreciation of the asset can take place, because the system automatically "switches" to a straight-line percentages method during the calculations. The calculation percentages in the Table Window on the main screen are actually system-corrected, beginning with the year in which the straight-line percentage will be greater than the declining-balance percentage. In this circumstance, after calculations, the percentages in the Total % to Depreciate and Cumulative % fields in the primary screen will be equal at "100.00%".
If you clear this check box, calculations can still take place, but the asset cannot be depreciated beyond the total percentage summed from the individual percentages from each year of life of the asset. In this circumstance, the system will display this message: Warning: Total Percent to Depreciate Adjusted to Actual Calculation.
If you click the OK button to continue with the automatic system calculation, the Total % to Depreciate field on the main screen will display a percentage summed from the table window that is less than 100.00%. You can manually edit the percentages for each year, as desired.