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Depreciation is a method of allocating the cost of a fixed asset over its estimated useful life. Governmental and proprietary fund types need to be depreciated.
Fields Involved in Tracking Depreciation
In order to track depreciation, the depreciation information of an item record must be complete. This includes:
Depreciation Field | Explanation |
|---|---|
Depreciation Method | This field must have one of the following values: None for no depreciation; Straight line depreciation ( |
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. |
Life-to-Date Depreciation Calculation
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When generating a Book Value report during the fiscal year, the depreciation reported is the LTD depreciation plus depreciation for the current fiscal year (YTD Depreciation). The depreciation for the current fiscal year is calculated on a monthly basis as the report is generated. The Book Value calculation is Original Cost - Total Depreciation.
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Depreciation Methods
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 value spread proportionally over the estimated life of the asset. The basic formula for computing straight-line depreciation is:
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So if an item has an original cost of $10,000 with an estimated useful life of 5 years and an estimated a salvage value of $1,000, it would have an annual (FTD) depreciation of $1800 computed as follows:
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End of Year | Original Cost | LTD Depreciation | Book Value at Beginning of FY | Yearly (FTD) Depreciation | Book Value at End of the Fiscal Year |
|---|---|---|---|---|---|
1 | 10,000 | - | 10,000 | 1,800 | 8,200 |
2 | 10,000 | 1,800 | 8,200 | 1,800 | 6,400 |
3 | 10,000 | 3,600 | 6,400 | 1,800 | 4,600 |
4 | 10,000 | 5,400 | 4,600 | 1,800 | 2,800 |
5 | 10,000 | 7,200 | 2,800 | 1,800 | 1,000 |
Result | 10,000 | 9,000 | 1,000 | 0 | 1,000 |
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 at the end of FY19in 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 |
Let's try another example. Let's track a Tag #2: $10,000 asset with no salvage value, a beginning depreciation date of 01/1501/2015 and an additional acquisition added to the item in on 12/01/2017 (FY18).
*NOTE: Regardless of the DD (day) entered for the beginning depreciation date, depreciation calculates for the full month.
End of Year | Original Cost |
|---|
Salvage Value |
|---|
Life | Age (years) | Calculation |
|---|
Full Year Depreciation Amount | FY Actual Depreciation Added (Pro-Rated) | (Total/End of FY) LTD Depreciation | |
|---|---|---|---|
1 (2015) | $10,000 |
$0 | 5 |
0.5 |  | $2,000 | $1,000 |
$1,000 | |
2 (2016) | $10,000 |
$0 | 5 | 1.5 |
 | $2,000 | $2, |
000 | $3,000 |
3 (2017) | $10,000 |
$0 | 5 | 2.5 |  |
$2,000 | $2 |
,000 | $5,000 | |||||||
2018 | During FY18, created additional acquisition against existing tag for $2000.00 thus updating original cost to $12,000.00 | |||||||
4 (2018) | $12,000 | |||||||
$0 | 5 | 3.5 |
| $2,800 | $2,800 | $7,800 | |
5 (2019) | $12,000 | $0 | 5 |
4.5 |  | $2,800 | $2,800 | $10,600 |
Result | $12,000 | $0 | 5 |
5 |
 | Fully Depreciated | $1,400 | $12,000 |
EISDEPR
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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.
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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 fiscal 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 their files after an initial appraisal data from a spreadsheet import for a new inventory load or in preparation for GAAP reporting. Once a district is actively tracking depreciation, this program should only be used with extreme caution. It is recommended that you always contact your system manager before using this program.
What the EISDEPR program does is to calculate the life-to-date depreciation for all items completely from scratch. It does NOT
CALCULATE THE DEPRECIATION FOR THE CURRENT FISCAL YEAR. Only items whose life-to-date 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; thus if no changes to the depreciation information have occurred, no report will be created.
Note that you can calculate the LTD depreciation on paper and manually enter it into the LTD field by using the Modify option.
**INSTRUCTOR** Stress that the EISDEPR program is normally used when first starting up to calculate the FLD depreciation for items whose depreciation beginning date is from a prior fiscal year. Usually, it is run just before the fiscal year closing in order to have the LTD dep. calculations correct for all past fiscal years. However, it can be run at any point during a fiscal year, since it calculates the LTD dep. through the LAST fiscal year closed. Since it calculates the LTD dep. from scratch, the program is not
Once a district is actively tracking depreciation, this option should be used with extreme caution because it does not protect the original depreciation tracking of assets where their original cost was changed mid-life. For example, this option would not be appropriate for items which have been depreciated for some years, and then had the original cost increased (for example for an upgrade). Running the EISDEPR program would cause the LTD dep. for these items to be recalculated additional acquisition created). The inventory system will pro-rate the newly updated original cost over the remaining life of the asset without disturbing any prior depreciation. However, the depreciate option would recalculate LTD depreciate for these items using the increased original cost from the beginning.In the case of a
Normally depreciated item whose :
Tag A's original cost is increased mid-life, the EIS software will pro-rate the new original cost over $5000 depreciated over 5 years. The yearly depreciation is $1000. If in year 4, I create an additional acquisition thus updating the original cost to $7000, my yearly depreciation for the remaining life of the asset without disturbing any prior depreciation. If this is not what the district wants, then the upgrade could be given a new tag number and be depreciated separately for a different period of time starting from the current date.**INSTRUCTOR** Note that the EISCLS program is used to add one year’s depreciation to the LTD depreciation for all items being depreciated. It also advances the last fiscal year closed flag by one year.is now $2000. It will not disturb prior year depreciation.
Year | Original Cost | Life | Yearly Depreciation |
|---|---|---|---|
1 | $5000 | 5 years | $1000 |
2 | $5000 | 5 years | $1000 |
3 | $5000 | 5 years | $1000 |
4 | $7000 | 5 years | $2000 |
5 | $7000 | 5 years | $2000 |
Running Deprecation Option
If I run depreciate on Tag A, it will recalculate LTD depreciation from scratch using the current original cost of $7000
Year | Original Cost | Life | Yearly Depreciation |
|---|---|---|---|
1 | $7000 | 5 years | $1400 |
2 | $7000 | 5 years | $1400 |
3 | $7000 | 5 years | $1400 |
4 | $7000 | 5 years | $1400 |
5 | $7000 | 5 years | $1400 |
As you can see, the original tracking of depreciation on the life of the asset is altered.
| Note |
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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 running the 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. A 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.
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