Standard depreciation method description

This document is an appendix to the documentation on Depreciation methods.

Standard includes a number of depreciation methods. Some are associated with a given legislation, while others are common to all legislations.

This document describes the calculation principles of the depreciation methods common to all legislations.

• RE - Straight-line on Net Depreciable Value
• UO - Work Units
• PR - Progressive
• SO - Softy (Sum-of-Years Digits)

RE - Straight-line on Net Depreciable Value

• Depreciation origin
• Duration
• Rate
• Depreciation end date
• Prorata temporis
• Depreciation charge

This method is used to depreciate the net depreciable value of the period start over the residual depreciation duration.

• Net depreciable value = Net value – Residual value
• Residual duration = Duration of the interval [Period start date - Depreciation end date]

The residual duration can be expressed in days, months, or weeks, depending on the prorata chosen.

Depreciation origin

The start date is not used to determine the charges. A charge will be calculated for each period as long as the net depreciable value will not equal 0, that is to say as long as the depreciation end date is not reached.

Duration

You need to enter the duration in years and hundredths of years.

For example: 6 2/3 years = 6.67 or 6.67.

It must correspond to the total duration of the depreciation and not to a residual time of any date: the residual time will be determined automatically by Sage X3 at the beginning of each period.

Rate

It is always equal to 0 and cannot be specified by the user.

Depreciation end date

If a prorata method is specified when creating the asset, the depreciation end date is determined as follows: Depreciation start date + Duration

If the prorata method is in months when creating the asset, the depreciation end date is determined as follows: 1st day of the month in the depreciation start date + Duration
This creates a depreciation end date corresponding to the end of a month.

If the prorata method is iweeks when creating the asset, the depreciation end date is determined as follows: 1st day of the week of the depreciation start date + Duration
This creates a depreciation end date corresponding to the end of a week.

If this method comes from a method change, the depreciation end date is updated when the prorata of the new method is managed differently, such as going from LP (prorata expressed in days) to RE (prorata expressed in months). The calculation algorithm of the depreciation end date is different, such as going from DF to RE (prorata expressed in months).

Prorata temporis

This depreciation method uses prorata temporis in days, weeks or months.

Depreciation charge

When the asset is not issued and when the asset is issued in a period which is later than or equal to the current period:

The calculation is done in three steps.  

Calculating the charge for the residual fiscal year is equal to

[Current period – Last period of the fiscal year] is determined by the Net depreciable value at period start * (Number of holding days/months/weeks in the interval [Current period - last period of the fiscal year] / Number of days/months/weeks of the interval [Current period - Depreciation end date] 

Calculating the non-closed charge for each period where the

Residual fiscal year charge * (Number of holding days/months/weeks in the periods pc to pn / Number of holding days/months/weeks in the interval [pc - last period of the fiscal year] - Depreciation total of the periods [pc - pn-1] ( pc = Current period, pn = Calculated period )

The distribution of the residual fiscal year charge is performed according to the weight of the periods.

Calculating the complete fiscal year charge is equal to the 

(Depreciation total in closed periods + Charge for the residual fiscal year)

When the asset is issued in a period which is earlier than the current period:

Recalculating the charge in the period of the Disposal date (1) is equal to

Net depreciable value at disposal period start * (Number of holding days/months/weeks in the Issue period / Number of days/months/weeks of the interval [Disposal date - Depreciation end date]) 

Calculating the disposal period charge is equal to               

Sum of the charges of the periods [Fiscal year start - Disposal period]

Calculation of the current period charge is equal to 

Fiscal year disposal charge - Sum of closed period charges (specified in the current period DEPREC)

This recalculation will determine the recovery of the depreciations posted in error. The DEPREC record of the disposal period will not be changed. The recovery of the depreciations posted in error will correspond to a negative charge recorded in DEPREC record of the current period.

UO - Work Units

• Depreciation origin
• Duration
• Rate
• Depreciation end date
• Prorata temporis
• Asset disposal date
• Depreciation charge

Depreciation origin

The depreciation start date must be specified; it will be used for applying a prorata temporis to the number of WOs defined in the Production plan.

Duration

The duration can be either entered, or determined based on the depreciation end date.

Rate

The rate has no use in this depreciation method and you cannot enter a rate.

Depreciation end date

You can enter a date, but it must be earlier than or equal to the production plan end date, if this date is specified.

Or the date can be determined in one of 2 ways:

• Depreciation start date + the duration specified
• Equal to production plan end date if the duration has not been specified and this production plan end date has been specified.

If the production plan end date is postponed, the calculation does not update the depreciation end date of the assets concerned. You need perform this update of the date via the Change method action.

Prorata temporis

The expected future cash flows deriving from the asset is expressed in WOs.
The WOS specified in the Production plan may be subjected to a prorata temporis, expressed in days, if:

• The depreciation start occurs mid-period.
• The depreciation end occurs mid-period.
• The disposal occurs mid-period.

Asset disposal date

The disposal date ends the depreciation plan. The recording of the disposal can be done

• After the current period when the disposal date is before the current period start date.
• During the current period when the disposal date is within the current period start and the current period end.
• In advance when the disposal date is after the current period end date.

In the first 2 cases, the last depreciation charge calculated is that of the current period.
In the last case, the last depreciation charge calculated is that of the period containing the disposal date.

Depreciation charge

When the asset is not issued and the asset is issued in a period which is later than or equal to the current period:

The calculation is done in three steps.

The charge for the residual fiscal year is equal to the [Current period – Last period of the fiscal year] is determined as follows: 

Net depreciable value at Period start * ( Sum WOs of non-closed periods of the fiscal year / Residual WO at period start

Calculating the non-closed charge for each period:

The charge for the residual fiscal year * ( Sum of the WOs of periods pc to pn / Sum WOs of non-closed periods of the fiscal year ) - Sum of the depreciations of the previous periods
         ( pc = Current period, pn = Calculated period )

The complete fiscal year charge is equal to

( Depreciation total in closed periods + Charge for the residual fiscal year )

When the asset is issued in a period which is earlier than the current period:

Calculating the period charge that contains the Disposal date is equal to

Net depreciable value at disposal period start * (WO of Disposal period / Residual WO at disposal period start )

Calculating the disposal period charge is equal to

Sum of the charges of the periods [Fiscal year start - Disposal period]

Calculating the current period charge is equal to

Fiscal year disposal charge - Sum Charges of closed periods (specified in the current period DEPREC)

PR - Progressive

• Depreciation origin
• Duration
• Rate
• Depreciation end date
• Prorata temporis
• Depreciation charge
• Distribution of the fiscal year charge on the periods

This depreciation method, also called Increasing depreciation, is used in various countries.
It is also accepted in French accounting.

Depreciation origin

It is equal to the first day of the month specified in the depreciation start date, unless the Depreciation plan/Context is managed in weeks. In this case, the depreciation origin is the first day of the week (Monday) in which the depreciation start date is to be found.

Duration

Because the depreciation rate is based on the sum of the data for each fiscal year, the duration must be expressed in complete years.

Rate

This progressive rate is automatically determined as follows:

Number of the year concerned / Sum of the yearly data for the depreciation duration

For example, for a 5-year depreciation, the rate applied to the second year is 2/15th.

The number linked to the 2nd year is equal to 2.

The total of years figures for a 5 year duration is: 5 + 4 + 3 + 2 + 1 = 15.

If the depreciation starts during a fiscal year or if the fiscal year duration differs from 12 months, 2 different depreciation rates can be applied in the same fiscal year.

Depreciation end date

It depends on the prorata temporis type.

If the prorata temporis is expressed in months:

the Depreciation end date equal to the 1st day of the month of the depreciation start date + depreciation duration in months. This leads to a depreciation end set at the end of the month.

If the prorata temporis is expressed in weeks:

The Depreciation end date is equal to the 1st day of the week (Monday) in which the depreciation start date is to be found + (depreciation duration * 52 weeks). This leads to a depreciation end located on the last day of the week (Sunday)

Depreciation end date calculation examples:

Prorata temporis

In most cases, the time is expressed in months.

An exception is made when the Depreciation plan/Context is managed in weeks and time is also expressed in weeks.

A prorata temporis is applied in the following cases:

• During the acquisition fiscal year, if the depreciation origin is not the 1st day of the fiscal year.
• When the fiscal year duration has a one-year or 52-week difference if the Depreciation plan/Context is managed in weeks.
• During the disinvestment fiscal year when the charge is calculated until the disposal day if the day of the disposal date is the last of the month; otherwise, the charge is calculated until the end of the month that precedes the disposal.
  
• This rule can be modified by using the following Disposal rules: Disposal at the end of the previous FY and Disposal at the end of the current FY.
  
• If the Depreciation plan/Context is managed in weeks, the depreciation charge is calculated until the end of the week (Sunday) in which the issue date is to be found.
• This rule can be modified by using the following Disposal rules: Disposal at the end of the previous FY and Disposal at the end of the current FY.

Depreciation charge

A fiscal year charge is calculated as follows:

• Charge =  (Depreciable value * Rate 1) * prorata temporis 1 
                   + (Depreciable value * Rate 2) * prorata temporis 2
• Depreciable value = (Gross value – Residual value)
• Rate 1 = Depreciable rate applied in 1st part of fiscal year
• Rate 2 = Possible depreciation rate applied in 2nd part of fiscal year
• (1) Prorata temporis 1 =
  Number of months (or weeks) in the period [max (Fiscal year start date, Depreciation start date)
  – min (End date of Rate 1 application, Fiscal year end date, Depreciation end date, Disposal date)]
  / 12 (or 52 if Depreciation plan/Context management in weeks)
• Prorata temporis 2 =
  Number of months (or weeks) in the period [Start date of Rate 2 application
  – min (Fiscal year end date, Depreciation end date, Disposal date)]
  / 12 (or 52 if Depreciation plan/Context management in weeks)

Notes

For the disinvestment fiscal year, only one depreciation rate applies, unless the fiscal year is longer than 12 months (or 52 weeks) and the asset was held for longer than 12 months (or 52 weeks) during it.

For each following fiscal year, two depreciation rates apply, each for a number of months (or weeks) defined in Prorata temporis 1 and Prorata temporis 2.

In order to have only one depreciation rate apply, two conditions must be met: each fiscal year must be equal to 12 months (or 52 weeks), and the depreciation origin must be the 1st day of the fiscal year.

For example, for an asset acquired on 7/1/2005 and depreciated over 5 years, the applied rates for the next fiscal years are:

Distribution of the fiscal year charge on the periods

If the fiscal year is divided into several periods, the fiscal year charge is distributed over these periods. This distribution is applied according to the following rule:

Period Charge is equal to

(Depreciable value * Rate 1 * Prorata 1) + (Depreciable value * Rate 2 * Prorata 2)
- Depreciation total of previous periods

Prorata temporis 1 is equal to

The number of months (or weeks) in the period [max (Fiscal year start date, Depreciation start date)
– min (End date of Rate 1 application, Current period end date, Depreciation end date, Disposal date)]
/ 12 (or 52 if Depreciation plan/Context management in weeks)

Prorata temporis 2 is equal to

The number of months (or weeks) in the period [Start date of Rate 2 application
– min (Current period end date, Depreciation end date, Disposal date)]
/ 12 (or 52 if Depreciation plan/Context management in weeks)

Notes

In some cases, depending on the division of the fiscal year into periods, a period may be subjected to only one depreciation rate.

For this depreciation method, period weight is not taken into account. It is the effective duration of each period that is taken into account.

SO - Softy (Sum-of-Years Digits)

• Depreciation origin
• Duration
• Rate
• Depreciation end date
• Prorata temporis
• Depreciation charge
• Distribution of the fiscal year charge on the periods

This declining depreciation method is used in various countries such as the United Kingdom, the United States, and Spain.
It is also accepted in French accounting.

Depreciation origin

It is equal to the first day of the month specified in the depreciation start date, unless the Depreciation plan/Context is managed in weeks. In this case, the depreciation origin is the first day of the week (Monday) in which the depreciation start date is to be found.

Duration

As the depreciation rate is determined based on the sum of the data for each fiscal year, the duration must be expressed in whole years.

Rate

This declining rate is automatically determined as follows:

The value of the year concerned / Sum of the yearly data for the depreciation duration

For example, for a 5-year depreciation, the rate applied to the second year is 4/15th:

The total of years figures for a 5 year duration is: 5 + 4 + 3 + 2 + 1 = 15

The value linked to the 2nd year is equal to 4

If the depreciation starts during a fiscal year or if the fiscal year duration differs from 12 months, two different depreciation rates can be applied in the same fiscal year.

Depreciation end date

It depends on the prorata temporis type.

If the prorata temporis is expressed in months:

The depreciation end date is equal to1st day of the month of the depreciation start date + depreciation duration in months. This leads to a depreciation end set at the end of the month.

If the prorata temporis is expressed in weeks

The depreciation end date = 1st day of the week (Monday) in which the depreciation start date is to be found + (depreciation duration * 52 weeks). This leads to a depreciation end located on the last day of the week (Sunday).

Depreciation end date calculation examples:

Prorata temporis

In most cases, the time is expressed in months.
You can make an exception when the Depreciation plan/Context is managed in weeks and time is also expressed in weeks.

A prorata temporis is applied in the following cases:

• During the acquisition fiscal year, if the depreciation origin is not the 1st day of the fiscal year.
• When the fiscal year duration has a one-year or 52-week difference if the Depreciation plan/Context is managed in weeks.
• During the disinvestment fiscal year, the charge is calculated until the disposal day if the day of the disposal date is the last of the month. Otherwise, the charge is calculated until the end of the month that precedes the disposal. This rule can be modified using the disposal rules: Disposal at the end of the previous FY and Disposal at the end of the current FY.
  
• If the Depreciation plan/Context is managed in weeks, the depreciation charge is calculated until the end of the week (Sunday) in which the issue date is to be found. As described above, this rule can be modified using the disposal rules: Disposal at the end of the previous FY and Disposal at the end of the current FY.

Depreciation charge

A fiscal year charge is calculated as follows:

The charge is equal to (Depreciable value * Rate 1) * prorata temporis 1 + (Depreciable value * Rate 2) * prorata temporis 2

• Depreciable value = (Gross value – Residual value)
• Rate 1 = Depreciable rate applied in 1st part of fiscal year
• Rate 2 = Possible depreciation rate applied in 2nd part of fiscal year
• (1) Prorata temporis 1 =
  Number of months (or weeks) in the period [max (Fiscal year start date, Depreciation start date)
  – min (End date of Rate 1 application, Fiscal year end date, Depreciation end date, Disposal date)]
  / 12 (or 52 if Depreciation plan/Context management in weeks)
• Prorata temporis 2 =
  Number of months (or weeks) of the period [Start date of Rate 2 application - min (Fiscal year end date, Depreciation end date, Disposal date)]
  / 12 (or 52 if Depreciation plan/Context management in weeks)

Notes

For the disinvestment fiscal year, only one depreciation rate applies, unless the fiscal year is longer than 12 months (or 52 weeks) and the asset was held for longer than 12 months (or 52 weeks) during it.

For each following fiscal year, two depreciation rates apply, each for a number of months (or weeks) defined in Prorata temporis 1 and Prorata temporis 2.

To have only one depreciation rate apply, two conditions must be met: each fiscal year must be equal to 12 months (or 52 weeks), and the depreciation origin must be the 1st day of the fiscal year.

Example: An asset acquired on 7/1/2005 and depreciated over 5 years. The applied rates for the next fiscal years are:

Distribution of the fiscal year charge on the periods

If the fiscal year is divided into several periods, the fiscal year charge is distributed over these periods. This distribution is applied according to the following rule:

Period Charge =

(Depreciable value * Rate 1 * Prorata 1) + (Depreciable value * Rate 2 * Prorata 2) - Depreciation total of previous periods

• Prorata temporis 1 =
  Number of months (or weeks) in the period [max (Fiscal year start date, Depreciation start date)
  – min (End date of Rate 1 application, Current period end date, Depreciation end date, Disposal date)]
  / 12 (or 52 if Depreciation plan/Context management in weeks)
• Prorata temporis 2 =
  Number of months (or weeks) of the period [Start date of Rate 2 application - min (Current period end date, Depreciation end date, Disposal date)]
  / 12 (or 52 if Depreciation plan/Context management in weeks)

Notes

In some cases, depending on the division of the fiscal year into periods, a period may be subjected to only one depreciation rate.

For this depreciation method, period weight is not taken into account: it is the effective duration of each period that is taken into account.