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Depreciation is a method of allocating the cost of a fixed asset over its estimated useful life. Capital assets should be depreciated over their estimated useful lives unless they are either
Fields Involved in Tracking Depreciation
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| Depreciation Field | Explanation |
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| Depreciation Method | This field must have one of the following values: None for no depreciation; Straight line depreciation (normal method most widely used by schools.); and Declining balance depreciation |
| Factor | Used only for the declining balance method. This method involves an accelerated depreciation for the beginning years. It is not normally used by schools |
Beginning Date | Date to begin calculating depreciation. Usually this is the same as the Acquisition Date. |
Original Cost | This field must have the value which is to be depreciated |
Life Expectancy | Used to determine the number of years the item is to be depreciated. This is usually set by the appraisal or insurance firm. These values can also be found in bulletins issued by the Ohio Auditor of State's office. |
Salvage Value | Estimated fair value at the end of the item's useful life or the anticipated trade-in value. When the total depreciation reaches this value, depreciation stops and the asset is considered to be fully depreciated. The salvage value is not required and can be left as zero. |
LTD Depreciation | This field is calculated automatically by the system when the open period is closed. It contains the total depreciation from the beginning date up through June 30 of the last fiscal year closed. |
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The depreciation method is required on an item. The methods available are None, Straight-Line, or Declining-Balance. However, since straight line depreciation is the most-widely used by school districts, only we will focus on this method will be discussed.
Straight-Line Method
Straight-line method is the cost minus estimated salvage value is spread proportionally over the estimated life of the asset. The basic formula for computing straight-line depreciation is:
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However the Inventory application uses a slightly different calculation from the straight-line method.The total depreciation as of the end of the last fiscal year (called Life-to-date Depreciation) is stored for each item. The system uses the following calculation for annual depreciation. The depreciation for a part of a year will be the annual depreciation pro-rated for the number of months involved.
This formula protects the calculation from being sensitive to changes in original cost, life expectancy, etc. Thus, if an improvement (additional acquisition) is done to an item, the amount of depreciation taken from that point on will reflect the increase or decrease to the original cost. Depreciation already taken in prior years will not be affected. Listed below are two examples of calculating depreciation for the life of the items.
Tag #1: $10,000 original cost depreciated over 5 years acquired 01/01/2015 (FY15) with a salvage value of 1000.00. The item should be completely depreciated in five years.
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Running Deprecation Option
If in year 4, I run depreciate on Tag A, it will recalculate LTD depreciation from scratch using the current original cost of $7000
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As you can see, the original tracking of depreciation on the life of the asset is altered. It is recommended that you contact your ITC or discuss
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It is strongly recommend to run a projection report first to review the newly recalculated LTD figures. It is suggested that you discuss recalculating depreciation with your auditors before |
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running the |
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actual option of depreciate for assets with significant historical depreciation. Please keep the actual report on file for auditing purposes. |
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Depreciation Transactions
LTD depreciation field is not modifiable when editing an item in Transactions>Items. If you want to change an item’s existing LTD depreciation to a specific value, you must edit the item and post a Depreciation Transaction. Depreciation Transaction can only be created for active items that have not been fully depreciated and can only be created for the current fiscal year. The amount entered will be added (or subtracted if entering a negative adjustment) to the existing LTD amount.
- Internal Type Depreciation Transactions are created when a period is closed. Internal type depreciation transactions cannot be deleted.
- Adjustment Type Depreciation Transactions are created by the user. It will automatically populate the fiscal year based on the current period. You must be in that current period in order edit or delete an Adjustment type depreciation transaction.
