> Understanding Asset Depreciation

Asset depreciation enables you to calculate an asset’s depreciation expense, which is the value of the wear, deterioration, or obsolescence of an asset based on an accounting period (fiscal year) and the useful life of the asset. The depreciation expense can then be written off as an annual income tax deduction, which enables you to recover the cost of the depreciation of the asset during an accounting period.

Datastream 7i provides four depreciation methods to enable you to maintain and monitor asset depreciation data for assets, systems, and positions: straight line, sum of years digits, double declining balance, and units of output. The ASDEPTYP installation parameter determines the default depreciation method for your organization. However, you can set the depreciation method at both the organization and/or the asset level as necessary.

Datastream 7i also enables you to create depreciation types based on the agency/body to which the depreciation data must be reported. For example, you may create depreciation types for generally accepted accounting practices (GAAP) and/or a local, federal, state, or international government agency.

Depreciation types are linked to the DETP entity for which you must define depreciation type codes.

After creating depreciation types for your organization, you can then use combinations of a depreciation type and depreciation method to create multiple depreciation schedules for a single piece of equipment. For example, you have a CHILLER unit for which you need to report depreciation information for GAAP as well as an international agency. However, the CHILLER unit must be depreciated using the straight line method for GAAP, but the same CHILLER is depreciated using the units of output method for the international agency. Datastream 7i enables you to create more than one depreciation schedule for the CHILLER unit using depreciation types.

Create fiscal year accounting periods for an organization on the Fiscal years page of the Organizations form (BMORGS), and then maintain depreciation data for an asset on the Depreciation page of the Objects form (OMOBJC). In addition to establishing the fiscal year periods upon which to base depreciation, you can also specify a Sold/scrapped date for an asset beyond which the asset no longer depreciates. Likewise, Datastream 7i does not calculate any further depreciation for an asset after the depreciation causes the Book value of the asset to reach its Residual value.

When you reach the Sold/scrapped date for the asset, the Book value for the period in which the asset reaches the Sold/scrapped date remains the Book value of the asset through the Sold/scrapped date. The Book value of the asset for all future periods is zero.

When entering depreciation data, you can choose to base the calculations on an estimated useful life of days, weeks, months, quarters, or years. Regardless of the unit of measure you select for the estimated useful life, Datastream 7i calculates a daily depreciation expense upon which all depreciation and book value calculations are based. Datastream 7i rounds all calculated values to two decimal places.

If you transfer an asset between organizations, Datastream 7i enters a Transfer date on the equipment record in the transferring organization and copies any depreciation information entered for the asset to the asset record in the new organization. Datastream 7i no longer calculates depreciation values for the transferred equipment in the transferring organization. Although the depreciation data is still displayed on the equipment record in the transferring organization, you can no longer view any calculated depreciation values for the transferred equipment in the transferring organization. However, if the equipment is transferred back to its originating organization, Datastream 7i deletes the Transfer date from the record, and you can again view calculated depreciation information.

Datastream 7i does not save depreciation calculations to the database, nor does it roll-up any depreciation costs within an equipment hierarchy. Datastream 7i calculates and displays depreciation values each time you access the Depreciation page of the Objects form (OMOBJC), and they are only applicable to the asset itself and not any child or parent assets in a hierarchy.

Datastream 7i enables you to calculate and display depreciation values based on Fiscal years or Months. Select Fiscal years to calculate and display depreciation values for each fiscal year period you have defined for your organization.

If you select Months, Datastream 7i displays the calculated depreciation expense for each month of the yearly financial periods you have defined on the Organizations form (BMORGS) in the lower section of the form.

Refer to the following image of the Depreciation page of the Equipment form (OMOBJC) for an example of the manner in which Datastream 7i displays depreciation data based on Months.

Regardless of whether you have selected Fiscal years or Months, Datastream 7i displays the Depreciation expense incurred during each period, as well as the Book value of the asset at the end of each period. Datastream 7i displays the depreciation expense incurred to date based on the fiscal years you have defined in Depreciation expense (to date), the depreciation expense incurred to date within the current period of the current fiscal year in Depreciation expense (PTD), and the current book value of the asset based on the current system date and the fiscal years you have defined in Book value (to date).

However, when you select Months, Datastream 7i ignores the fiscal years entered for the organization and assumes that every period lasts exactly one month. Only the first and last months of the depreciation period can be shorter than a month. The first period starts on the asset commission date and ends on the last day of the month during which the asset was commissioned. The periods following the first month always begin on the first day of the month and end on the last day of the month. The last period begins on the first of the month and ends on the last day of the asset’s useful life. Datastream 7i uses the daily depreciation expense to calculate the depreciation expense and book value into the correct monthly totals.