on 09-16-2015 8:37 AM
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
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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
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
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
GopalK
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
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
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
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
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
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
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
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.
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
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
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
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
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
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
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
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.
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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
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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.
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