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 (normal method 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 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 value is not required and can be left as zero. |
LTD Depreciation | This field is calculated by the software. It contains the total depreciation from the beginning date up through June 30 of the last fiscal year closed. |
Life-to-Date Depreciation Calculation
The life-to-date (LTD) depreciation field should equal the total depreciation for the item through June of the last fiscal year closed. For example, January 1, 2022, the LTD depreciation for an asset would be from the beginning date of depreciation through June 30, 2021 (assuming the last fiscal year closed is 2021). Closing a period via Core>Fiscal Years will update the LTD depreciation amount by one year.
Depreciation is actually tracked monthly in the application. A beginning date is entered to begin depreciating the item. The first year, the depreciation posted to the LTD depreciation field will be the annual depreciation amount pro-rated based on the number of months the item is actually being depreciated. For example, if an item has a depreciation beginning date of 01/01/2022, only one-half (6 months) of the annual depreciation amount will be posted to the LTD depreciation. In subsequent years, the entire annual depreciation amount will be posted to the LTD depreciation field.
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.
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 used by school districts, only 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:
So if an item has an original cost of $10,000 with an estimated useful life of 5 years and an estimated salvage value of $1,000, it would have an annual depreciation of $1800 computed as follows:
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 FY19.
| End of Year | Original Cost | LTD Depreciation | Salvage Value | Life | Age (years) | Calculation | Yearly LTD Depreciation |
|---|---|---|---|---|---|---|---|
| 1 (2015) | $10,000 | $0 | $1,000 | 5 | 0 |
| $1,600 |
| 2 (2016) | $10,000 | $1,600 | $1,000 | 5 | 1.5 |
| $2,000 |
| 3 (2017) | $10,000 | $4,000 | $1,000 | 5 | 2.5 |
| $2,000 |
| 4 (2018) | $10,000 | $6,000 | $1,000 | 5 | 3.5 |
| $2,000 |
| 5 (2019) | $10,000 | $8,000 | $1,000 | 5 | 4.5 |
| $2,000 |
| Result | $10,000 | $10,000 | $1000 | 5 | 5 | Fully Depreciated |
Let's try another example. Let's track a $10,000 asset with no salvage value, a beginning depreciation date of 01/15/2015 and an additional acquisition added to the item in 12/01/2017.
*NOTE: Regardless of the DD (day) entered for the beginning depreciation date, depreciation calculates for the full month.
| Year | Original Cost | LTD Depreciation | Salvage Value | Useful Life | Age (years) | Calculation | Yearly LTD Depreciation |
|---|---|---|---|---|---|---|---|
| 1 (2015) | $10,000 | 1000 | $0 | 5 | 6 months |
| $2,000.00 |
| 2 (2016) | $10,000 | $2,0000 | $0 | 5 | 1.5 |
| $2,222.22 |
| 3 (2017) | $10,000 | $4,444.44 | $0 | 5 | 2.5 |
| $2,222.22 |
| 2018 | During FY18, created additional acquisition against existing tag for $2000.00 thus updating original cost to $12,000.00 | ||||||
| 4 (2018) | $12,000 | $6,666.66 | $0 | 5 | 3.5 |
| $3,555.56 |
| 5 (2019) | $12,000 | $10,222.22 | $0 | 5 | 4.5 |
| $1777.78 |
| Result | $12,000 | ||||||
EISDEPR
The EISDEPR program is a "fix" type of program that will re-calculate the LTD depreciation field from scratch. This program should generally be run after making changes to the depreciation information for existing items. This usually occurs when a district is cleaning up their files after an initial appraisal 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 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 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 using the increased original cost from the beginning.
In the case of a depreciated item whose original cost is increased mid-life, the EIS software will pro-rate the new original cost over 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.