Standard depreciation method description

UL - Straight line

The straight-line depreciation method is used in the United Kingdom as well as in the USA.

Depreciation origin

It depends on the prorata temporis type specified by the user at depreciation schedule level.

• If prorata = Month (Month) --> Start of the depreciation on the first day of the month of the depreciation start date. (1) 
• If prorata = ½ Month (Mid-Month) --> Start of the depreciation in the middle of the month of the depreciation start date. (2)
• If prorata = ½ quarter(Mid-Quarter) --> Start of the depreciation in the middle of the quarter of the depreciation start date. (3)
• If prorata = ½ Year (Half-Year) --> ½ annuity is used in the acquisition fiscal year (4)
  

(1) No matter the day of the depreciation start date.
(2) No matter the day of the depreciation start date, event if it is the first day of the month.
(3) No matter the day of the depreciation start date, even if it is the first day of the quarter.
(4) No matter the day of the depreciation start date or the fiscal year duration.

Duration

The duration is expressed in years and hundredths of years.

Rate

The depreciation rate cannot be entered by the user. It is automatically calculated as follows: 1 / duration

Depreciation end date

It depends on the prorata temporis type:

• If prorata temporis = ½ year:
  
  Depreciation end date = first day of the month of the Start date for the fiscal year following the acquisition fiscal year

  + (Depreciation duration – 0,5)
  This leads to a last day in the month.

• If prorata temporis = month:
  
  Depreciation end date = first day of the month of the depreciation start date + Depreciation duration
  
  This leads to a last day in the month.
  

• If prorata temporis = ½ month:
  
  Depreciation end date =
  first day of the month of the depreciation start date + Depreciation duration + 0,5 month
  
  This leads to 15 days of the month.
  

• If prorata temporis = ½ quarter:
  
  Depreciation end date =
  first day of the quarter in which the depreciation start date is to be found + Depreciation duration + 0.5 quarter
  
  This leads to the middle of the quarter.

Depreciation end date calculation examples:

Prorata temporis

The prorata temporis type can be specified by the user or must be defined by the associations if the depreciation method itself is defined by the associations. It can be modified by action Method change.

The possible values are as follows:

• Prorata = month (Month)
• Prorata = ½ month (Mid-Month)
• Prorata = ½ quarter (Mid-Quarter)
• Prorata = ½ year (Half-Year)

Depreciation charges

The charge is equal to:

Depreciation value * Depreciation rate * prorata temporis (1)

Notes:

(1) The prorata temporis is expressed either in ½ year, or in month, in ½ month, or in ½ quarter.

- Depreciation value = (Gross value – Residual value)
- If the Depreciation end date is equal to the Fiscal year enddate and if the asset is not issued before this depreciation end date, then the Fiscal yearcharge = Net depreciation value.
-If the Net depreciation value is superior to 0 and if the residual depreciation duration is equal to 0 (this is the case when the Depreciation end date is inferior to the fiscal year start date), then the Fiscal yearcharge = Net depreciation value so as to close the depreciation.

The disinvestment fiscal year charge is calculated depending on the prorata temporis type:

• If Prorata = ½ year, the disinvestment fiscal year charge corresponds to the fiscal year charge * 50%.
  This applies to the case where the asset is issued in its depreciation end fiscal year.
  Ditto if the disinvestment fiscal year is different from 12 months.
• If Prorata = Month, the charge is calculated until the end of the month that comes before the issue month or until the issue day if it corresponds to the last day of the month.
• If Prorata = ½ month, the charge is calculated until the middle of the issue month. a ½ charge is thus retained for the issue month.
• If Prorata = ½ quarter, the disinvestment fiscal year charge corresponds to the fiscal year charge. * a changeable percentage depending on the issue quarter in the fiscal year:
  
  - 12.50 % (1 ½ Quarter / 8) if Issue date before 1st quarter
  - 37.50 % (3 ½ Quarter / 8) if Issue date to be found in the 2nd quarter
  - 62.50 % (5 ½ Quarter / 8) if Issue date to be found in the 3rd quarter
  - 87.50 % (7 ½ Quarter / 8) if Issue date to be found in the 4th quarter
  
  This rule can be be put into question by the Issue rules: Previous fiscal year end issue and Current fiscal year end issue.

Distribution of the fiscal year charge on the periods

When the fiscal year is divided into several periods, the fiscal year charge is distributed over these periods. The distribution rule is different based on the applied prorata temporis:

• If prorata temporis = ½ year or month.
  In this case, the holding period starts on the 1st day of the month of the depreciation start date.
  
  Period charge = Fiscal year charge
  *(∑ p1 to pc (Number of holding months in the period)
  /∑ p1 to pf (Number of holding months in the period) )
  - Previous period depreciation total

• If prorata temporis = ½ month or ½ quarter.
  In this case, the holding period starts:
  
  - either in the middle of the month of the depreciation start date, if Prorata = ½ month,
  - or in the middle of the quarter (i.e. the middle of the quarter 2nd month) in which the depreciation start date is to be found, if Prorata = ½ quarter.
  
  Period charge = Fiscal year charge
  * (∑ p1 to pc (Number of ½ holding month in the period)
  /∑ p1 to pf (Number of ½ holding month in the period) )
  - Previous period depreciation total

p1 to pc = of the 1st holding period in the fiscal year, until the current period included (1)
p1 to pf = of the 1st holding period in the fiscal year; until the last fiscal year holding period.

(1) Unless the asset is issued in the fiscal year before this current period or if it is completely depreciated in the fiscal year before this current period. Thus, the retained period is the minimum one among the 3 following ones:
- depreciation end period if the Depreciation end date bellongs to interval [period start – period end]
- issue period if the Issue date belongs to interval [period start – period end]
- current period

For this depreciation method, the period weight is not taken into account.

Depreciation schedule revision

• If a method change is decided during the acquisition fiscal year (fiscal year in which the depreciation start date is to be found):
  
  - the depreciation method remains Straight line
  -the fiscal year charge is calculated again based on the new characteristics
  - unclosed periods will "naturally" absorb the variance in the fiscal year charge

• If a method change is decided during a fiscal year that takes places after the acquisition fiscal year or if there is a revaluation of the depreciation value or if an impairment loss is recorded:
  - the depreciation method changes from Straight line to Residual,
  - except for the impairment loss, which triggers a revision of the schedule at the start of the following period, the other possible actions (method change, update of the depreciation basis, revaluation) provoke a revision of the schedule at the start of the current period.
  - The fiscal year charges will be equal to:

Closed period deprecitation total
+
"Residual" fiscal year charge calculated following the revision of the schedule

Examples

1st example

• Gross value 10 000
• Residual value: 0
• Depreciation start date: 14/02/2005
• Depreciation duration: 7 years --> Rate: (1/7)  = 14,28571 %
• Prorata temporis type: ½ year --> Depreciation end date: 30/06/2012
   
  

(1)  (10 000,00 * 14,28571%) / 2 = 714,29
(2)  10 000,00 * 14,28571% = 1 428,57
(3)  10 000,00 – 9 285,71 = 714,29

2nd example

• Gross value 10 000
• Residual value: 0
• Depreciation start date: 14/02/2005
• Depreciation duration: 7 years --> Rate: (1/7)  = 14,28571 %
• Prorata temporis type: month --> Depreciation end date: 31/01/2012

(1)  10 000,00 * 14,28571% * 11/12 = 1 309,52
(2)  10 000,00 * 14,28571% = 1 428,57
(3)  10 000,00 – 9 880,94 = 119,06

3rd example

• Gross value 10 000
• Residual value: 0
• Depreciation start date: 14/02/2005
• Depreciation duration: 7 years --> Rate: (1/7)  = 14,28571 %
• Prorata temporis type: ½ month --> Depreciation end date: 15/02/2012

(1) 10 000,00 * 14,28571% * 21 ½ month /24 ½ month = 1 250,00
(2) 10 000,00 * 14,28571% = 1 428,57
(3) 10 000,00 – 9 821,42 = 178,58
(4) 1 250,00 * 3/21 = 178,57 (3/21 for the asset has been kept for 3 ½ months during this quarter)
(5) 1 250,00 * 9/21 = 535,71 – 178,57 = 357,14
(6) 1 250,00 * 15/21 = 892,86 – 535,71 = 357,15
(7) 1 250,00 * 21/21 = 1 250,00 – 892,86 = 357,14

UD - Declining balance

The declining depreciation method is used in the United Kingdom as well as in the USA.

Depreciation origin

It depends on the prorata temporis type specified by the user at depreciation schedule level.

• If prorata = Month (Month) --> Start of the depreciation on the first day of the month of the depreciation start date. (1) 
• If prorata = ½ Month (Mid-Month) --> Start of the depreciation in the middle of the month of the depreciation start date. (2)
• If prorata = ½ quarter(Mid-Quarter) --> Start of the depreciation in the middle of the quarter of the depreciation start date. (3)
• If prorata = ½ Year (Half-Year) --> ½ annuity is used in the acquisition fiscal year (4)
  

(1) No matter the day of the depreciation start date.
(2) No matter the day of the depreciation start date, event if it is the first day of the month.
(3) No matter the day of the depreciation start date, even if it is the first day of the quarter.
(4) No matter the day of the depreciation start date or the fiscal year duration.

Duration

The duration is expressed in years and hundredths of years.

Examples:

• 5 for 5 years
• 3,5 for 3 years and 6 months
• 6.66 for 6 years and 8 months

Rate

The depreciation rate cannot be entered by the user. It is automatically calculated based on an acceleration coefficient as follows:

( 1 / duration ) * acceleration coefficient

This acceleration coefficient must be spcified bu the user or define by associations (espacially if the mode itself is defined by associations). It can be modified by action Method change.

It corresponds to the decline coefficient applied to the French declining depreciation method. It can have value:
- 1,25
- 1,50
- 1,75
- 2

Depreciation end date

It depends on the prorata temporis type:

• If prorata temporis = ½ year:
  
  Depreciation end date = first day of the month of the Start date for the fiscal year following the acquisition fiscal year

  + (Depreciation duration – 0,5)
  This leads to a last day in the month.

• If prorata temporis = month:
  
  Depreciation end date = first day of the month of the depreciation start date + Depreciation duration
  
  This leads to a last day in the month.
  
• If prorata temporis = ½ month:
  
  Depreciation end date =
  first day of the month of the depreciation start date + Depreciation duration + 0,5 month
  
  This leads to 15 days of the month.
  
• If prorata temporis = ½ quarter:
  
  Depreciation end date =
  first day of the quarter in which the depreciation start date is to be found + Depreciation duration + 0.5 quarter.
  
  This leads to the middle of the quarter.
  

Depreciation end date calculation examples:

Prorata temporis

The prorata temporis type can be specified by the user or must be defined by the associations if the depreciation method itself is defined by the associations. It can be modified by action Method change.

The possible values are as follows:

• Prorata = month (Month)
• Prorata = ½ month (Mid-Month)
• Prorata = ½ quarter (Mid-Quarter)
• Prorata = ½ year (Half-Year)

Depreciation charges

The depreciation expenditure equals the highest of both following values:

• Net depreciation value * Depreciation rate * prorata temporis
• Net depreciation value * (Holding duration for the fiscal year / Residual depreciation duration)

 Notes:

- Net depreciation value = (Net value – Residual value)

- The residual depreciation value equals the duration of interval [fiscal year start date – depreciation end date]

- If the Depreciation end date is equal to the Fiscal yearend date and if the asset has not been issued before this depreciation end date, then the Fiscal yearcharge equals the Depreciationnet value.

-If the Depreciation net value is superior to 0 and if the residual depreciation duration equals 0 (this is the case when the Depreciation end date is inferior to the Fiscal year start date), then the Fiscal yearcharge equals the Net depreciation value in order to close the depreciation.

The disinvestment fiscal year charge is calculated depending on the prorata temporis type:

• If Prorata = ½ year, the disinvestment fiscal year charge corresponds to the fiscal year charge * 50%.
  This applies to the case where the asset is issued in its depreciation end fiscal year.
  Ditto if the disinvestment fiscal year is different from 12 months.
• If Prorata = Month, the charge is calculated until the end of the month that comes before the issue month or until the issue day if it corresponds to the last day of the month.
• If Prorata = ½ month, the charge is calculated until the middle of the issue month. a ½ charge is thus retained for the issue month.
• If Prorata = ½ quarter, the disinvestment fiscal year charge corresponds to the fiscal year charge * a percentage that can vary based on the fiscal year issue quarter:
  
  - 12,50 % (1 ½ Quarter / 8) if the Issue date is to be found in the first quarter
  - 37,50 % (3 ½ Quarter / 8) if the Issue date is to be found in the second quarter
  - 62,50 % (5 ½ Quarter / 8) if the Issue date is to be found in the third quarter
  - 87,50 % (7 ½ Quarter / 8) if the Issue date is to be found in the fourth quarter
  This rule can be modified by Issue rules: Previous fiscal year end issue and Current fiscal year end issue.

If the method is changed during the fiscal year (revision of the duration, acceleration coefficient, prorata type, depreciation start date), the implementation systematically is the fiscal year start: the charge of the fiscal year is thus recalculated using the new method.

Distribution of the fiscal year charge on the periods

When the fiscal year is divided into several periods, the fiscal year charge is distributed over these periods. This distribution is applied based on the following rule:

• Prorata temporis = ½ year or month. In this case, the holding period starts on the 1st day of the month of the depreciation start date.
   
  Period charge = Fiscal year charge
                              *(∑ p1 to pc (Number of holding months in the period)
                               /∑ p1 to pf (Number of holding months in the period) )
                               - Previous periods depreciation total
• Prorata temporis 2 = ½ months or ½ quarter. In this case, the holding period starts:
  
  - either in the middle of the month of the depreciation start date, if Prorata = ½ month,
  - or in the middle of the quarter (i.e. the middle of the quarter 2nd month) in which the depreciation start date is to be found, if Prorata = ½ quarter.
  
  Period charge = Fiscal year charge
                              * (∑ p1 to pc (Number of ½ holding months in the period)
                               /∑ p1 to pf (Number of ½ holding months in the period) )
                               - Previous period depreciation total

p1 to pc = of the 1st holding period in the fiscal year, until the current period included (1)
p1 to pf = of the 1st holding period in the fiscal year; until the last fiscal year holding period.

(1) Unless the asset is issued in the fiscal year before this current period or if it is completely depreciated in the fiscal year before this current period. Thus, the retained period is the minimum one among the 3 following ones:
- depreciation end period if the Depreciation end date bellongs to interval [period start – period end]
- issue period if the Issue date belongs to interval [period start – period end]
- current period

For this depreciation method, the period weight is not taken into account.

Examples

1st example

• Gross value 10 000
• Residual value: 0
• Depreciation start date: 03/04/2006
• Acceleration coefficient: 2
• Depreciation duration: 5 years --> Rate: (1/5) * 2 = 40 %
• Prorata temporis type: ½ year

The Depreciation end date determined by Sage X3 will be: 30/06/2011

(1) 10 000,00 * 40% * 50% or 6/12th = 2 000,00
(2) 8 000,00 * 40% = 3 200,00
(3) 4 800,00 * 40% = 1 920,00
(4) 2 880,00 * 40% = 1 152,00 (equal to 2 880,00 * 12 / 30 = 1 152,00)
(5) 1 728,00 * 12 / 18 = 1 152,00 since it is superior to 1 728,00 * 40% = 691,20
(6) 576,00 * 6 / 6 = 576,00

If this assets has not been issued in 2010, irrespective of the issue date:

(7) 1 728,00 * 12 / 18 = 1 152,00 * 50% ou 6/12th = 576,00 (50% or 6/12th since a ½ issue fiscal year charge).

If this assets has not been issued in 2011, irrespective of the issue date:

(7) 576,00 * 6 / 6 = 576,00 * 50% = 288,00     (50% since a ½ issue fiscal year charge)

1st example (continued):

Depreciation schedule in case the fiscal years are divided into quarters

(1) 2 000,00 * 3/9th = 666,67 ( 3/9th since 3 holding months for this quarter)
(2) 2 000,00 * 6/9th = 1 333,33 – 666,67= 666,66
(3) 2 000,00 * 9/9th = 2 000,00 - 1 333,33 = 666,67
(4) 576,00 * 3/6th = 288,00
(5) 576,00 * 6/6th = 576,00 – 288,00 = 288,00

Had the fiscal year been divided into months (monthly order), the fiscal year charge distribution would have been carried out following the same pattern, i.e. by applying holding prorata expressed in months: the first depreciation charge would have been recorded in April 2006.

2nd example

• Gross value 10 000
• Residual value: 0
• Depreciation start date: 03/04/2006
• Acceleration coefficient: 1,5
• Depreciation duration: 3 years --> Rate: (1/3) * 1,5 = 50 %
• Prorata temporis type: ½ quarter
  

The Depreciation end date determined by Sage X3 will be: 15/05/2009

(1) 10 000,00 * 50% * 5/8th = 3 125,00 ( 5/8th = 5 ½ holding quarters out of 8 )
(2) 6 875,00 * 50% = 3 437,50
(3) 3 437,50 * 8 / 11th = 2 500,00 since it is superior to 3 437,50 * 50% = 1 718,75
(4) 937,50 * 3/3rd = 937,50

If this asset has not been issued in the first quarter 2008, irrespective of the issue date:

(5) 3 437,50 * 8 / 11th = 2 500,00 * 12,50% = 312,50 (12,50% = 1 ½ quarter / 8 ½ quarters)

If this asset has not been issued in the third quarter 2009, irrespective of the issue date:

(6) 937.50 * 3 / 11th = 937.50 * 62.5% = 585.94 (62.5% = 5 ½ quarter / 8 ½ quarters)

2nd example (continued):

Depreciation schedule in case the fiscal years are divided into quarters

(1) 3 125,00 * 3/15th = 625,00 ( 3/15th since 3 ½ holding months for this quarter)
(2) 3 125,00 * 9/15th = 1 875,00 – 625,00= 1 250,00
(3) 3 125,00 * 15/15th = 3 125,00 - 1 875,00 = 1 250,00
(4) 937,50 * 6/9th = 625,00 ( 6/9th since 6 ½ holding months for this quarter and 9 ½ months to reach the depreciation end date)

(5) 937,50 * 9/9th = 937,50 – 625,00 = 312,50

Had the fiscal year been divided into months (monthly order), the fiscal year charge distribution would have been carried out following the same pattern, i.e. by applying holding prorata expressed in ½ months:

• 05/2006 = 3 125,00 * 1/15th = 208,33
• 06/2006 = 3 125,00 * 3/15th = 625,00 – 208,33 = 416,67
•  …

3rd example

• Gross value 10 000
• Residual value: 0
• Depreciation start date: 03/04/2006
• Acceleration coefficient: 1,5
• Depreciation duration: 3 years --> Rate: (1/3) * 1,5 = 50 %
• Prorata temporis type: ½ month
  

The Depreciation end date determined by Sage X3 will be: 15/04/2009

(1) 10 000,00 * 50% * 17/24th = 3 541,67 (17/24th = 17 ½ holding months out of 24 )
(2) 6 458,33 * 50% = 3 229,17
(3) 3 229,16 * 24 / 31st = 2 499,99 since it is superior to 3 229,16 * 50% = 1 614,58
(4) 729,17 * 7/7th = 729,17

 If this asset has been issued on 03/24/2008:

(5) 3 229,16 * 5 / 31st = 520,83 (5 / 31st = 5 ½ holding months in 2008)

If this asset has been issued on 14.07.09:

(6) Issue date 07/14/2009 > Depreciation end date 04/15/2009, so there is no prorata temporis to be applied due to the issue.

3rd example (continued):

Depreciation schedule in case the fiscal years are divided into quarters

(1) 3 541,67 * 5/17th = 1 041,67 (5/17th since 5 ½ holding months for this quarter)
(2) 3 541,67 * 11/17th = 2 291,67 – 1 041,67= 1 250,00
(3) 3 541,67 * 17/17th = 3 541,67 - 2 291,67 = 1 250,00
(4) 729,17 * 6/7th = 625,00 (6/7th since 6 ½ holding months for this quarter)
(5) 729,17 * 7/7th = 729,17 – 625,00 = 104,17

Had the fiscal year been divided into months (monthly order), the fiscal year charge distribution would have been carried out following the same pattern, i.e. by applying holding prorata expressed in ½ months.

SO - Softy (Sum-of-Years Digits)

Thi declining depreciation method is used in various countries (United Kingdom, United States, Spain).
It is also accepted in French accounting.

Depreciation origin

It is systematically equal to the first day of the month specified in the depreciation start date, except if the Depreciation schedule/Context is managed in weeks. In this case, the depreciation origin systemtically 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 cannot be entered by the user and is determined as follows:

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

Example:
For a 5-year depreciation, the rate applied to the second year is 4/15th. Indeed:

- the sum of the data for the five years is: 5 + 4 + 3 + 2 + 1 = 15

- the value of the 2nd year equals 4

In case of depreciation start during a fiscal year or in case of a fiscal year with a 12-month difference, 2 depreciation rates can be applied upon same fiscal year.

Depreciation end date

It depends on the prorata temporis type.

• If the prorata temporis is expressed in months:
  
  Depreciation end date = 1st day of the month entered in the depreciation start date + depreciation duration in months.
  This leads to a depreciation end located at month end.

• If the prorata temporis is expressed in weeks:
  
  Depreciation end date = 1st day of the week (Monday) in whixh 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, time is expressed in months.
An exception is made when the Depreciation schedule/Context is managed in weeks: time is then expressed in weeks, too.

A prorata temporis applies in the following cases:

• During the acquisition fiscal year, when the depreciation origin is not the first day of the fiscal year.
• When the fiscal year duration has a on-year or 52-week difference if the Depreciation schedule/Context is managed in weeks.
• During the disinvestment fiscal year: the depreciation charge is calculated until the issue day if the fay specified in the issue date is the last one of the month; if not, the depreciation charge is calculated until the end of the month before the issue.
  This rule can be modified by Issue rules: Previous fiscal year end issue and Current fiscal year end issue.
  
  If the Depreciation schedule/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 indicated above, this rule can be modified by Issue rules: Previous fiscal year end issue and Current fiscal year end issue.

Depreciation charges