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How to calculate monthly depreciation expense after residual value changed

Former Member
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Hi,

We have a question about the logic of monthly depreciation expense.

We are ready to change a lot of assets residual value by changing the depreciation key from 10% to 5%.

When take a test for it, we check the asset value and cannot figure out the calculation of monthly depreciation expense.

If somebody understand how it works, would you share with me?  Anyway, thanks.

Kevin,

Regards

Accepted Solutions (1)

Accepted Solutions (1)

Former Member
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Hi, here are the screenshot of the asset.

Could you help me find out the calculation logic or reason?

Regards,

Kevin

former_member198650
Active Contributor
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Hi Kevin,

It seems you have changed the depreciation key after run the depreciation for the period 8, so system is recalculating the depreciation as per new method for the current year and post the difference from 1 to 8, in the period 9 along with the depreciation of the period. And also let us know what is the depreciation key have you used? Does it based on useful life or percentage?

Regards,

Mukthar

Former Member
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Hi, Mukthar.

The depreciation key was SZ01, and here is its detail settings. Need any more details?

Regards,

Kevin

former_member198650
Active Contributor
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Hi Kevin,

I want screen shot of multi level method & base method of the dep.key.

Regards,
Mukthar

sapmmgopal
Participant
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Hope this will help you to understand:

Present scenario:

For 60 months depreciation calculated is (capitalised value - Scrap value)/number of months

(2700-10% of 2700)/60

(2700-270)/60

2430/60 = 40.50 which is calculated till the month 8 which is shown in your screen.

Changes and their impact:

Scrap value changed with remaining things unchanged:

(Depreciation key effective date not changed) By changing the scrap value from 10% to 5% the applicable capital amount changed from 2430 to 2565

  1. i.e. 2700-5% of 2700.

And monthly amount as depreciation will be :

2565/60 = 42.75.

Depreciation is calculated for the year 2015 with 40.5 till month 8. Which is as per old scrap value. But New depreciation value will be:

2565/60 = 42.75

As the depreciation already posted till period 8.

The differential amount i.e. (42.75*8)-(40.5*8)=18 considered as un-posted depreciation for the year 2015 and adjusted in period 9 depreciation which is 42.75

  • ð 42.75+18 = 60.75. This is showing as planned in the period 9.
  • ð From period 10 the depreciation values are as per new scrap value considered as 5%.i.e. 42.75


GopalK


Former Member
0 Kudos

Hi GopalK,


I can understand your explaination. But I think there is a contradiction in 2017, could you explain the last year 2017?


From the view of Comparison, planned ordinary depreciation for 2017 is 364.50, the remaining life is 7 months, and the depreciation value will be:


  364.50 / 7 = 52.07   bigger than 42.75


And then this is what I can't understand.



Regards,

Kevin

former_member198650
Active Contributor
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Hi Kevin,

The remaining value after deduct the scrap value charged as depreciation for 2017.  On scrap value system wont calculate depreciation. It remains unchanged until you retire the asset.

Regards,

Mukthar

Former Member
0 Kudos

Hi Mukthar,

Monthly depreciation value 42.75 is correct, the depreciation for the last year 364.5 is also correct, and the depreciation for the last year has nothing to do with the monthly depreciation value, may I undertand like that way?

Regards,

Kevin

Former Member
0 Kudos

Hi Mukthar,

Here are the screenshots.

Regards,

Kevin

sapmmgopal
Participant
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Not exactly.

You depreciation key is applicable from capitalisation date.

As per new scrap value your monthly depreciation changed from 40.5 to 42.75.

The differential amount is 2.25 per month.

From 8th month of 2012 to 12 th month of 2014 i.e. 5+12+12=29 months, depreciation calculated as 40.5 where as it should be 42.75. In total 2.25*29 months = 65.25 is adjusted in last year.

This completely depends on how you have configured the depreciation key.

We have configured depreciation key which distributes the amount in each month.

Goto : AFAMA transaction and check the depreciation key's assignment of calculation methods.

Compare it with LINS standard depreciation key. You can find the difference.

GopalK

former_member198650
Active Contributor
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Hi Kevin,

If your multi level method has defined with percentage, then the depreciation value is equal for 12 months. If it is based on useful life then the depreciation will be as per your calculation i.e. remaining value/remaining period.

Regards,

Mukthar

Former Member
0 Kudos

Hi GopalK,

Thanks, I get your point and gradually understand the calculation.

One more thing, it seems the system will extend the useful life after I change the depreciation key.

The differential amount 65.25 in 2017 year will be divided into the next 2 months, August is still 42.75, and September is  ( 65.25 - 42.75 = ) 22.50 .


Is this situation common after the depreciation key of assets are modified?



Regards,

Kevin

Former Member
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Hi Mukthar,


As you know, under the depreciation key is modified, the system increases the depreciation and expired useful life of the asset.


However, this result is not we want. We hope to keep the expired useful life of asset, and share equally the depreciation differences into the later each month but not like September 2015. May I know how to acheive them?



Regards,

Kevin

sapmmgopal
Participant
0 Kudos

By considering your scenario (depreciation based on useful life) System will post this 65.25 in the period 01 or 07 of the year 2017. System will not increase the useful life. This will be just like the adjustment done by system in the period 09 of this year.

GopalK

Former Member
0 Kudos

Hi Gopal,

In fact, I make a small test and find the expired useful life will be increased  at least 1 month by system. So I really want to know,


​after modification of scrap value, the expired useful life ​( accurate to month )​ will not increase, and the months in the future will share the depreciation differences on average, but not one month or two months absorb the differences.


It can be true? Could you teach me how to finish it?



Regards,

Kevin

former_member198650
Active Contributor
0 Kudos

Hi Kevin,

You can post the difference in depreciation due to dep.key or useful change in two ways. One is post the difference in the current month or post the diff.equally in the remaining periods of the year by activating the check box smoothing in OAYR for the co.code and dep.area.

Regards,

Mukthar

Former Member
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Hi Mukthar,

By activating the check box smoothing in OAYR, the system does post the diff.equally, but it  seems still not the result we want, the calculation of depreciation should be ( the current value - the scrap value ) / the remaining periods, but not the whole useful life and the original value.

Reviewing our discussion, I remember you say that:

If it is based on useful life then the depreciation will be as per your calculation i.e. remaining value/remaining period.

There are something I can't figure out, what choice is "based on useful life". I consider maybe this words can solve the above question, what do you think?

Regards,

Kevin

sapmmgopal
Participant
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We had the same situation.

Can you test it with the following procedure.

1. Change the Ordinary depreciation start date : 01.01.2015 in AS02 transaction (do not change expired life)

2. Goto AW01N and check the values.

And please share the AW01N screenshot.

GopalK.

former_member198650
Active Contributor
0 Kudos

Hi Kevin,

This is depends on your multi level method of the dep.key. Check the base method in it, it should be 24 and remaining life check box also select in it. Then only it calculates the depreciation based on remaining life on remaining value.

Regards,

Mukthar

Former Member
0 Kudos

Hi Gopal,

You mean I could follow the procedure under the modification of depreciation key?

Regards,

Kevin

sapmmgopal
Participant
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I fully agree with  Mukthar Ali Ahamed N . You settings for depreciation key will decide how to calculate the depreciation. And its a combination of several methods.

I would suggest you to make depreciation key with following settings:

Select the existing depreciation key LINS and Copy in Same chart of Depreciation:

Dep. Key : ZLIN

Description : As per your nomenclature

Dep. To the Day : Tick (select)

Now click on “Assignment of Calculation Methods” Under dialog structure of  Depreciation Key:

Dep./Int                  Phase      Base.Meth.  Decl.bal. Prod. Cont   Multi.lvl    Change.

Ord.depreciation         1             0011              001            003            001        5        

Ord.depreciation         2             0017              001            003            003       

Select each line item and Click on Display:

Phase 1 Screen:

Change the Scrap value field to :

Base Value is reduced by the scrap value amount

And Save. This depreciation key will work as (NBV-Scrap)/Rem Useful Life and it will not increase the useful life.

GopalK.

Former Member
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Hi Gopal,

I copy the key LINS to ZLIN, and modify the phase 1 screen as your guiding. but it tips error message when modify the dep. key of an asset into ZLIN.

Enter a depreciation key with 'depreciation by days'

Regards,

Kevin

Former Member
0 Kudos

Hi Mukthar,

Do you have any idea about the configuration details? Would you like to share with us?

Regards,

Kevin

former_member198650
Active Contributor
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Hi Kevin,

Define multi level method of the dep.key as shown below.

Then after, assign it to dep.key in AFAMA. Later change the dep.key for the asset and recalculate the depreciation in AFAR or AS02.

Regards,

Mukthar

sapmmgopal
Participant
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Please check the below screenshot.

These settings worked for us and we are using this dep key for all our assets.

GopalK

Former Member
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Hi Gopal,

Although I have selected in this check box, it just tips that error message. Will it be affected by the past dep key? The configurations of past dep key do not select in the check box.

Regards,

Kevin

former_member198650
Active Contributor
0 Kudos

Hi Kevin,

System wont allow to change the dep.key for the assets which are already posted depreciation and also the dep.key which are using for existing assets do not select the dep.per day check box.

Regards,

Mukthar

sapmmgopal
Participant
0 Kudos

This is purely for testing purpose.

Remove the Tick for the new Depreciation Key created and save and activate it.

Now go to AS02 and change the depreciation key with new key. It should work(tested it).

It is not advisable to change the settings of existing depreciation key as it might be used somewhere.

Consider a test case in your system and apply this new depreciation key to it.

The configurations suggested by Mukthar Ali Ahamed N   already exists in MLM 001 which we have already used in the new depreciation key.

So test it and see if you find any error.

GopalK

Former Member
0 Kudos

Hi Mukthar,

Here is your view, and thanks we are close to the result we want.

This is depends on your multi level method of the dep.key. Check the base method in it, it should be 24 and remaining life check box also select in it. Then only it calculates the depreciation based on remaining life on remaining value.

I realize I don't really understand the meaning of remaining life and remaining value after the configuration tests. Is the remaining life based on year or month?


For example, an asset A will finish deprecation at the end of next year, that means it remains 15 months and the remaining life seams to be 15 months. However, cause this fiscal year 2015 isn't closed now, the system ignores the font depreciated months, takes 2 year as remaining life (called B) and the remaining life at the begin of this year as the current remaining value (called C). Then when re-calculates the depreciation,


the yearly depreciation = so-so remaining value / 2 years


In fact, we hope the depreciation should like that:


remaining life = 15 months but not 2 years

remaining value = excluding the value of depreciated months in 2015

depreciation = remaining value / remaining life


Maybe there are something we have not configured, do you know them?

Regards,

Kevin

former_member198650
Active Contributor
0 Kudos

Hi Kevin,

Remaining life means after deduction of expired useful life of the asset from the useful life asset. Suppose asset total useful life is 5 years and the depreciation already charged it for 2 years, so remaining life will be 5-2=3 years. Remaining value means net book value of the asset i.e. APC cost - accumulated depreciation. In your case the dep.key does not configure such settings in the multi level method of the dep.key. Once you maintain the settings in it, then you will get desired results.

Hope you are clear now.

Regards,

Mukthar

Former Member
0 Kudos

Hi Mukthar,

I understand your meaning, but the example you take is two full years, what if the depreciation already charged it for 2 years 9 months in fact?

Regards,

Keivn

former_member198650
Active Contributor
0 Kudos

Hi Kevin,

In that case remaining life will be 2 years and 3 months.

Regards,

Mukthar

Former Member
0 Kudos

Hi Mukthar,

Maybe you misunderstand my doubts. What I'm not clear is the depreciation has charged the asset for a few months this year, but the exp. useful life does not include these months.


Take this asset for example, its useful life is 5 full years, ord. dep. start date is 2011.01.01, the newest posted period is March 2015, and it supposes to depreciate 4 years and 3 months while the exp. useful life calculated by system is 4 full year.


Once exp. useful life is different, remaining life is followed different, and the depreciation is followed different, too. And finally we will lose our desired results.


Regards,

Kevin

former_member198650
Active Contributor
0 Kudos

Hi Kevin,

I got your query. You are checking the remaining life in AW01N for 2015, but it is not considering the current year depreciation posted periods. If my understanding is correct, then the remaining life will change once you change the fiscal year. However, if you have maintained the dep.key based on remaining life, then system will calculate the depreciation correctly.

Regards,

Mukthar

Former Member
0 Kudos

Hi Mukthar,

I agree with you. The remaining life will change once you change the fiscal year. However, in other word, if I maintain the dep.key based on remaining life during the current year, the system maybe will increase the depreciation of the rest months to keep the yearly depreciation consistent. Do you know that? Now I hope to solve this part, or could you give some suggestions when maintain or change the dep. key? Should I maintain or change the dep. key during the current year, or suggest me do it in the next year?

Regards,

Kevin

former_member198650
Active Contributor
0 Kudos

Hi Kevin,

You can change it now or next year, this is depends on your requirement. If you change the dep.key in current year, the ddep.ifference between old dep.key & new dep.key will post in next month and for rest of months the dep.will be consistent. If you change in next year the depreciation will be consistent for rest of months.

Regards,

Mukthar

Answers (2)

Answers (2)

sapmmgopal
Participant
0 Kudos

Hi,

You can check the depreciation in transaction AW01N to understand the calculation pattern for individual assets.

Or you can use S_ALR_87012936 as suggested above by Mukthar Ali Ahamed N .

Few points to be taken care to know the calculations.

1. Depreciation key used (along with the residual value % or absolute).

2. Effective date of depreciation key change.

3. Useful life remaining.

GopalK.

former_member198650
Active Contributor
0 Kudos

Hi Kevin,

If you want to see monthly depreciation for the assets after change the dep.key, then run the report S_ALR_87012936, here you have to select the option monthly by click on all selections.

Regards,

Mukthar

Former Member
0 Kudos

Hi,

I know this t-code and check the value of asset. However, I question just because I check it. After I modify the depreciation key ( residual value changed from 10% to 5% ), the monthly depreciation expense and year depreciation expense are changed, and these expenses look weird.

For example, after updated, monthly depreciation expense is $42.75, year depreciation expense is $513.00, and the last year ( 7 months ) is $364.50.

When check the connection between $42.75/month and $513/year, it seems okay, but check the last year, we find that the depreciation expense of the last year maybe is smaller or the monthly depreciation expense maybe is bigger.

Then I get confused about the calculation logics.

sapmmgopal
Participant
0 Kudos

Hi,

can you share the screenshot of AW01N for one asset so that we can check then numbers.

GopalK.