Category Archives: Asset Properties

Adjust Depreciation Going Forward Without Changing the Past

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Q and AWe often get questions from our clients regarding changing the cost of an asset. Here is an example:

Over the past 6 months we have returned a number of assets. What is the best way to record these returns in Bassets eDepreciation? We need to:

  1. Record the returns and see the offset in depreciation for the current months.
  2. Adjust the books value in a way that future depreciation taken is only the purchased amount less the returns. All of these returns are only part of the original fixed asset cost.

Here is our reply:

The best way to solve this problem is with a negative Adjustment to Basis. The concept of what it does is as follows:

  • Assume computer hardware cost of $5,000.00, acquired October 2012.
  • Depreciation is straight line with a full month convention over 5 years (60 months) which yields $83.33 per month in depreciation ($5,000/60).
  • April 2013, $2,000.00 of damaged material is returned to vendor.
  • The Adjustment to Basis in the case of a refund is entered as a negative$ 2,000.00 with an April 2013 effective date.  This yields a negative or offsetting depreciation of $33.33 per month
  • The six months of prior negative $33.33 per month is taken in April 2013, the effective date of the Adjustment to Basis.  Therefore, your prior accumulated depreciation as of the end of March 2013 will not change.
  • Your April depreciation will be $83.33 minus $233.31 ($83.33 * 7 periods) to result in negative $149.98.
  • May depreciation and going forward would then be $50 ($83.33 – $33.33).

This is a very powerful feature that allows you to adjust depreciation basis without impacting monthly depreciation that has already booked to your general ledger. Use this feature to deal with returns like in the example above or additional charges that are incurred after the initial purchase. For more information on this feature, click on the related post below:

Change The Basis of an Actively Depreciating Asset: http://www.depreciationguru.com/2012/10/change-the-basis-of-an-actively-depreciating-asset/

Questions or comments on this post? We invite you to respond in the space below.

More information about Bassets eDepreciation software can be found at Bassets.net. While there you can set up a demonstration, download a free evaluation copy and get a personalized pricing estimate.

Definition of an Asset in Debate

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A recent article in CFO Magazine asks the question “When is an asset not an asset?” This is a real concern for CFOs and other executives who account for lease expenses incurred by their companies.

Finance executives are not happy with a new lease accounting proposal that requires lease expenses to be recorded on corporate balance sheets. The proposal from FASB (Financial Accounting Standards Board) and IASB (International Accounting Standards Board) wants corporations to distinguish between equipment and property leases. They are attempting to treat leases more like purchases:

They note that the boards’ lessee accounting model disregards the nature of the lease contract, focusing too much on equating the lease to the underlying asset. The asset is often out of the control of the lessee, so they say accounting for the value and price of an asset exclusively as an owned asset isn’t appropriate in certain situations. In short, they want the focus back on the actual contract and away from the underlying asset.

When regulators and finance executives can’t agree on the definition of an asset, there are going to be a lot of questions. Right now this is only a proposal and hopefully the boards will clear up some of this confusion before they actually vote on the project.

Read Full Article:

Questions or comments about this post? We invite you to respond in the space below.

More information about Bassets eDepreciation software can be found at Bassets.net. While there you can set up a demonstration, download a free evaluation copy and get a personalized pricing estimate.

Change the Basis of an Actively Depreciating Asset

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The amount paid for an asset is the foundation for depreciable basis. This amount is the cost plus any additional expenses related to the acquisition. Depreciation will begin when an asset is placed in service and the basis is used as the starting point. Occasionally not all of the costs are known when the asset is placed in service. In these instances an adjustment to basis is necessary.

Bassets eDepreciation allows you to enter a date and dollar amount for each adjustment. The adjustment amount can be either positive (additional cost) or negative (credit) with an associated effective date:

This situation often occurs with shipping costs or other charges that are received a few months after the initial purchase. Conversely a credit may occur if there is a rebate or over charge on a purchase.

If you tried to deal with this situation by just altering the initial cost, then this would impact the depreciation for earlier months that have already been booked to your general ledger. By including an effective date, Bassets eDepreciation maintains the original calculations and only adjusts monthly depreciation going forward. When depreciation is calculated for this asset record, any prior amounts before the adjustment date will be added to the current depreciation as of the adjustment date. Any missing depreciation for the prior periods will be accounted for in the month of the adjustment.

As you can see, adjustment to basis is a simple solution to what can sometimes be a tricky problem. Dealing with additional fees, charges and even credits can be handled going forward without impacting prior months.

Questions or comments about this post? We invite you to respond in the space below.

More information about Bassets eDepreciation software can be found at Bassets.net. While there you can set up a demonstration, download a free evaluation copy and get a personalized pricing estimate.

Determining Asset Property Class – Part 2

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Recently we put up a post on Determining Asset Property Class. It referenced IRS Publication 946 and the importance of choosing the correct property class. Today, we follow that up post by showing how Bassets eDepreciation can simplify this process.

Selecting the appropriate property class is a critical step in determining the correct annual depreciation amount. The property classes are listed in Appendix B of IRS Publication 946. A manual lookup of each class can be very time consuming during asset entry, so Bassets eDepreciation now includes a handy Asset Class form as shown below:

This feature provides an easy retrieval of the accurate IRS property class. As you scroll through the list of asset classes, the correct values for each class are shown below. These values include property type, listed property, class life years, bonus code and section 179. In addition, the years, depreciation method and first year convention are displayed for GDS, ADS and AMT.

Combining a property class lookup with the business rules logic of Bassets eDepreciation allows for intelligent data entry and consistency in all of your business assets.

Questions or comments about this post? We invite you to respond in the space below.

More information about Bassets eDepreciation software can be found at Bassets.net. While there you can set up a demonstration, download a free evaluation copy and get a personalized pricing estimate.

Suspend Depreciation So Selected Periods Do Not Calculate

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Is it possible to have some assets not calculate depreciation for several months?

Yes, this can be accomplished with a type of disposal called suspend. A suspend allows depreciation to be halted for a period of time and then restarted later. The suspend will effectively pause the depreciation calculation and then extend the asset life for the same number of periods to ensure full depreciation.

Let’s say that a piece of machinery was being moved to a new location, but the new location is not completed yet. That piece of machinery might sit idle for several months and not be eligible for depreciation during that time. Once the new location is open and the machinery is placed back in service, then depreciation could restart.

Let’s look at an example:

Here you have a $1,000 asset being depreciated over 5 years with a suspend for the first 6 months of 2013. As you can see, the normal annual depreciation is $200, but 2013 is only taking $100. A normal 5 year life would have finished at the end of 2016, but you can see here that the recovery periods were extended from 60 periods (5 years times 12 months) to 66 periods. The suspended 6 months are tacked on at the end so the asset now finishes in 2017.

As you can see, suspend is a handy utility to deal with this specialized request. By pausing depreciation for a period of time, Bassets eDepreciation allows the net book value to be properly spread over the remaining periods in the asset’s life. This ensures a consistent calculation based on the original asset properties.

Questions or comments about this post? We invite you to respond in the space below.

More information about Bassets eDepreciation software can be found at Bassets.net. While there you can set up a demonstration, download a free evaluation copy and get a personalized pricing estimate.