Calculating periodic depreciation expense

The system calculates the periodic depreciation expense based on the following equation:

Periodic Depreciation Expense = Daily Depreciation Rate x Number of Days in Period

Note: If you view depreciation calculations based on fiscal years, the system may have to further divide each period into two segments to calculate the depreciation expense. If an asset’s year of life, as defined by its Commission Date, and fiscal year do not coincide, the system must calculate two periodic depreciation expenses for each year of the asset’s life, e.g., your asset’s Commission Dateis 5/1/02. Therefore, its first year of life runs from 5/1/02 through 4/30/03. The fiscal year of the asset runs from 11/1 through 10/31. Therefore, the system must calculate the asset’s depreciation expense from 5/1/02 to 10/31/02 and then again from 11/1/02 to 4/30/03.

If you select Double Declining Balance as your Depreciation Method, the calculated periodic depreciation expense for the last period of an asset’s life may cause the Book Value of the asset to be less than its Residual Value. In this case, the system adjusts the depreciation expense of the last period so the asset’s Book Value equals its Residual Value.

Example:

See the following information to determine an asset’s periodic depreciation expense for the years 2003, 2004, and 2005:

  • The fiscal year of the asset’s organization begins September 1 and ends August 31.
  • The Commission Date for the asset is 02-JUL-2003.
  • The Sold/Scrap Date of the asset is 02-SEP-2005.
  • The daily depreciation expense of the asset is 17.60 USD.

To determine the depreciation expense for the year 2003, the system performs the following calculation:

2003 Depreciation Expense = Daily Depreciation Expense x Number of Days Between Commission Date and Period End Date

2003 Depreciation Expense = 17.60 USD * 61

2003 Depreciation Expense = 1,073.60 USD

To determine the depreciation expense for the year 2004, the system performs the following calculation:

2004 Depreciation Expense = Daily Depreciation Expense x Number of Days in Period

2004 Depreciation Expense = 17.60 USD * 366

2004 Depreciation Expense = 6,441.60 USD

Note: Because 2004 is a leap year and February 2004 occurs within the organization’s 2004 fiscal year, the number of days in the period is 366.

To determine the depreciation expense for the year 2005, the system performs the following calculation:

2005 Depreciation Expense = Daily Depreciation Expense x Number of Days Between Period Start Date and Sold/Scrap Date

2005 Depreciation Expense = 17.60 USD * 2

2005 Depreciation Expense = 35.20 USD