For each depreciation type, there are many possible depreciation scenarios based on the fiscal years entered, the useful life of the asset, the residual value of the asset, the sold/scrapped date, and whether you choose to calculate results based on fiscal years or months.
This section walks you through an example of a straight line depreciation scenario with examples of the calculations that occur based on the straight line depreciation method.
When entering depreciation data, you can choose to base the calculations on an estimated useful life of days, weeks, months, quarters, or years. Because of leap years, not all calendar years consist of exactly 365 days, nor do all calendars consist of exactly 52 seven-day weeks. Therefore, Datastream 7i calculates a daily depreciation expense upon which all calculations are based.
Additionally, all calculated values are rounded to two decimal places. The depreciation calculations for an asset will vary depending on the unit of measure you select for the estimated useful life.
To provide an accurate explanation of the calculated values for the depreciation methods that enable you to duplicate the calculations on your system, this scenario is based on the following fiscal years defined on the Fiscal years page of the Organizations form (BMORGS).
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Start date |
End date |
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01-SEP-2002 |
31-AUG-2003 |
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01-SEP-2003 |
31-AUG-2004 |
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01-SEP-2004 |
31-AUG-2005 |
The Commission date for the asset is 02-JUL-2003, and the depreciation and book value calculations are based on the following information entered on the Deprecation page of the Equipment form (OMOBJC).
The Original value of the asset is 10,000.
The Estimated useful life of the asset is 500 Days.
The Residual value of the asset is 1200.
The Depreciation method is Straight line.
After entering and saving the information above, Datastream 7i calculates the depreciation expense for the defined periods and displays the depreciation expense information in the lower portion of the form.
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Datastream 7i calculates depreciation expense upon saving the information for each of the depreciation methods except units of output. If you use units of output as your depreciation method, Datastream 7i only calculates the values when you enter the units of output on the Units of output dialog box and click OK to commit the values. |
Straight line annual depreciation expense is based on the following formula:
(Original value – Residual value) / Estimated useful life in years = Annual Depreciation Expense
However, Datastream 7i calculates the daily depreciation expense for the asset to determine the annual depreciation expense. The Estimated useful life of the asset in this scenario is 500 days. Therefore, the daily depreciation expense for the asset is calculated as follows:
(10,000 USD – 1200 USD) / 500 days = 17.60 USD
17.60 USD is the daily depreciation expense upon which all of the calculations for the depreciation expenses and book values are based.
There are three fiscal year periods specified for the organization of the asset. 2-JUL-2003 is the commission date for the asset in this example. Therefore, period 1 is 61 days, period 2 is 366 days, and period 3 is 73 days.
Datastream 7i calculates the period 1 depreciation expense using the following formula:
Daily depreciation expense x The number of days between the Commission date and the Fiscal year End date
Datastream 7i calculates the period 1 depreciation expense as follows:
17.60 USD x 61 Days = 1073.60 USD
Datastream 7i calculates the annual depreciation expense for periods 2 and 3 using the following formula:
Daily depreciation expense x The number of days in the period
For this scenario, Datastream 7i calculates the depreciation expense periods 2 and 3 as follows:
17.60 USD x 366 days = 6441.60 USD (Period 2)
17.60 USD x 73 days = 1284.80 USD (Period 3)
Datastream 7i calculates the period 1 book value based on the following formula:
Original value – (Daily deprecation expense x Number of days between the Commission date and Fiscal year End date)
For this example, Datastream 7i calculates the period 1 book value as follows:
10,000 USD – (17.60 USD x 61 Days) = 8926.40 USD
Datastream 7i calculates the book value for periods 2 and 3 based on the following formula:
Book value from the previous period – The deprecation expense for the current period
For this scenario, Datastream 7i calculates the book value for periods 2 and 3 as follows:
8926.40 USD – 6441.60 USD = 2484.80 USD
2484.80 USD – 1284.80 USD = 1200 USD
The Depreciation expense of 1284.80 USD incurred during period 3 depreciates the Book value of the asset to 1200 USD, which is the specified Residual value of the asset.
The Depreciation expense (to date) represents the total depreciation of the asset that has occurred since its 2-JUL-2003 commission date to the present system date.
The Depreciation expense (PTD) represents the total depreciation of the asset that has occurred since the beginning of the current period on 1-SEP-2003 to the present system date.
The Book value (to date) represents the current book value of the asset based on its 2-JUL-2003 commission date and the present system date.
If you select Months, Datastream 7i displays the calculated straight line depreciation expense for each month of the yearly financial periods you have defined in the lower section of the form.
Datastream 7i ignores the fiscal years entered for the organization and assumes that every period lasts exactly one month. Only the period 1 and the last period (period 17 for this scenario) are shorter than a month. Datastream 7i determines the number of days in each monthly period, and then calculates the depreciation expense for each period using the daily value of 17.60 USD. Datastream 7i calculates the period 1 depreciation expense using the following formula:
Daily depreciation expense x The number of days between the Commission date and the period end date
For each period that is 30 days, Datastream 7i calculates the depreciation expense for that period as follows:
17.60 USD x 30 Days = 528.00 USD
For each period that is 31 days, Datastream 7i calculates the depreciation expense for that period as follows:
17.60 USD x 31 Days = 545.60 USD
Datastream 7i calculates the book value for the first monthly period based on the following formula:
Original value – (Daily deprecation expense x Number of days between the commission date and the period end date)
Datastream 7i calculates the book value for each subsequent period based on the following formula:
Book value from the previous period – The deprecation expense for the current period
