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Australian Diminishing Value Depreciation method

  • 26 May 2023
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Foujan
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Hi,

 

We are trying to use Australian Diminishing Value in Fixed Assets, however system forces us to use ‘useful Life Year’.

This method is only capturing the place-in-service date, the cost and the percentage per year.

So it does not make sense to have years against each asset, as it’ll change the method.

 

Can someone assist and let me know how you imported your assets using this method?

 

Thanks,

Foujan

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Best answer by aaghaei 29 May 2023, 09:35

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E
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Hi Foujan, are you trying to change the depreciation method on the Balance tab on the FA?

 

Do you have full access rights?

Thanks, Eddie
Foujan
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@enhee0702 Hello, I am implementing new method as per below. and trying to import assets using this method, however, system still need me to put useful life, years. But Australian Diminishing Value method is only based on percent per year per asset class.

 

E
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@enhee0702 Hello, I am implementing new method as per below. and trying to import assets using this method, however, system still need me to put useful life, years. But Australian Diminishing Value method is only based on percent per year per asset class.

 

Hello Foujan, seems like that is correct behaviour as it will calculate percentage for first year from total of useful life year.

Thanks, Eddie
Foujan
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@enhee0702 But based on the Total Cost and percentage per year the year would be different.

So does that mean I should put a random useful life year and the max?

Cause now if I put 8 years, I am using 25%, and the Cost is $34,364. It passes 8 years…So system does not allow me to keep depreciating the asset, unless I put a useful life year for more than 23 years.

 

1DPE800 has been depreciated at 25% per year for around 12 years. A rough calculation of that gives a remaining value of (75%)^12 = 3.167%.

The stated net value of $1,085.30 is 3.158% of the original $34,364. So that’s consistent with what I’d expect, accounting for timing and rounding errors.

  The current financial year had an opening net value of $1,370.90.

  25% of that is $342.725, so $28.56042 per month, rounded to $28.56.

   10 months of depreciation so far = $285.60, leaving a current net value of $1,085.30

 

   It’ll be depreciated another $28.56 in May and $28.56 in June.

   Then from July to next June it’d be depreciated at $21.42 per month...etc.

aaghaei
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Honestly declining balance method is not just used in Australia. It is one of the GAAP accepted methods and is very obvious how it should work. I am in Canada and over a year ago I had the same discussion 4 times with Acumatica team. Not sure why it is too difficult for them to understand “Declining Balance DOESN’T have year” it is just based on PERCENTAGE and net book value at the beginning of each year.

long story short we were forced to enter fictitious nonsense years. 

what you can do is to enter a crazy year, setup the rest as it should and when you wrapped things up, do a little bit of customization to “Hide” the useful life year for declining methods. Out of sight, out of mind. 

Reza Aghaei CPA, M. Acc. & Acumatica Customization - If a member helped you, please *Like* their post. If a member provided an answer to your question, please mark it as *Best Answer*.
Foujan
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Thanks @aaghaei , I was questioning my knowledge and our client’s knowledge in this regard :)))

We came up with 2 solutions:

  1. splitting the asset to a second asset after the useful life years finished, using the Net value for the current one as the original cost for the new asset
  2. using the correct useful life years and dispose (Write Off) the remaining amount

Then they won’t face any issue with the auditors.

 

Foujan
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We also found this explanation on how it works for Diminishing Value calculation.
So @aaghaei you were absolutely right is using dummy useful life years. :)

Diminishing Value method, calculates depreciation based on the specified Percent per Year setting of each particular asset.

For each period of an asset’s useful life, depreciation is calculated based on the following formula.

D = NBV_year * Percent per Year * (N / 365)

  • D: The depreciation expense for an accounting period.
  • NBV_year: The net book value of the asset for the financial year. This value is calculated as follows for the listed financial years:
    • The first financial year (the year to which the Depr. From Period belongs): NBV = (Ac – Sa) * Business Use %
    • All other financial years: NBV = NBV of the previous financial year – Ad
  • Ac: The acquisition cost of the asset.
  • Sa: The salvage amount (or the residual value) specified for the asset.
  • Business Use: The use of the asset for business purposes, expressed as a percentage. This value is specified in the table on the Balance tab of the asset. Which is normally 100%.
  • Ad: The accumulated depreciation of the asset.
  • Percent per Year: The depreciation rate of the asset.
  • N: The exact number of days the asset is held in the fiscal period. The number of days held is calculated as follows for the following periods:
    • The first depreciation period that is specified for the book (Depr. From Period: Last day of the period – Placed-in-Service Date + 1
    • The disposal period: Disposal Date – First date of the period + 1
    • The other periods: Length of the period in days

Because this method can be used to depreciate assets for an indefinite time, you should define when the calculation should stop as follows:

  • If the useful life of the asset is known and its depreciation should be stopped after some period, you enter the real useful life in the Useful Life, Years of the fixed asset class. This value will be inserted as the default value in the Useful Life, Years box on the General Settings tab of the fixed asset.
  • If the useful life of the asset is unknown and its depreciation should be performed until the asset is disposed of, you enter an unrealistically large number (for example, 100) in the Useful Life, Years of the fixed asset.

If a legitimate estimation of the asset’s useful life needs to be entered (for informational or reporting purposes) that differs from the large value you need to specify in the Useful Life, Years box, a separate customisation box should be used.

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