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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.
| End of Year | Original Cost | (Total) LTD Depreciation | Salvage Value | Life | Age (years) | Calculation | Yearly LTD Depreciation |
|---|---|---|---|---|---|---|---|
| 1 (2015) | $10,000 | $900 | $1,000 | 5 | 0.5 |
| $1,800 |
| 2 (2016) | $10,000 | $2,700 | $1,000 | 5 | 1.5 |
| $1,800 |
| 3 (2017) | $10,000 | $4,500 | $1,000 | 5 | 2.5 |
| $1,800 |
| 4 (2018) | $10,000 | $6,300 | $1,000 | 5 | 3.5 |
| $1,800 |
| 5 (2019) | $10,000 | $8,100 | $1,000 | 5 | 4.5 |
| $1,800 |
| Result | $10,000 | $10,000 | $1000 | 5 | 5 | --- | Fully Depreciated |
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| End of Year | Original Cost | (Total) LTD Depreciation | Salvage Value | Life | Age (years) | Calculation | Yearly LTD Depreciation |
|---|---|---|---|---|---|---|---|
| 1 (2015) | $10,000 | $1,000 | $0 | 5 | 0.5 |
| $2,000 |
| 2 (2016) | $10,000 | $3,000 | $0 | 5 | 1.5 |
| $2,000 |
| 3 (2017) | $10,000 | $5,000 | $0 | 5 | 2.5 |
| $2,000 |
| 2018 | During FY18, created additional acquisition against existing tag for $2000.00 thus updating original cost to $12,000.00 | ||||||
| 4 (2018) | $12,000 | $7,800 | $0 | 5 | 3.5 |
| $2,800 |
| 5 (2019) | $12,000 | $10,600 | $0 | 5 | 4.5 |
| $2,800 |
| Result | $12,000 | $12,000 | $0 | 5 | 5 | --- | Fully Depreciated |
Declining Balance Method
The declining-balance method of computing depreciation yields greater than pro rata deductions during the earlier years of life and less than pro rata deductions during the later years. The effect is to reduce the income tax payable in the earlier years and correspondingly increase the amount of funds available to pay for the asset or to increase working capital. Therefore this method of depreciation is not applicable to school districts.
The declining-balance method applies a uniform rate of not more than twice the straight-line rate to the unrecovered basis of the property. Estimated salvage value need not be considered in computing the rate or the base. For example, if the declining-balance method at twice the straight-line rate were applied to a $10,000 asset with an estimated life of 5 years and estimated salvage of $1000, the accelerated rate would be 40% and the initial base against which the rate would be applied would be $10,000. However, an asset may not be depreciated below its estimated salvage value. This method is illustrated in the following table.
The EIS system allows you to enter a "factor", which should be greater than 1 but not greater than 2 to use in calculating declining-balance depreciation. The example above is illustrated using a factor of 2, commonly referred to as the "double-declining balance" method. The formula utilized by EIS to calculate annual depreciation is:
1 Estimated Useful Life
* Factor * Book Value
The annual depreciation will be pro-rated based on the number of months being depreciated to come up with a monthly depreciation amount.
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Depreciate option
The Depreciate option in Transactions>Items re-calculates the LTD depreciation field from the LAST field year closed from scratch. This option can be run after making changes to the depreciation information for existing items where it warrants LTD depreciation to be recalculated. This usually occurs when a district is cleaning up data from a spreadsheet import for a new inventory load or in preparation for GAAP reporting. The depreciate option does not calculate the depreciation for assets added in the current period (these assets only have FTD depreciation at this point - no LTD depreciation is calculated until after the year has been closed). Only items whose depreciation has been changed by the program will be included on the report.
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