Category Archives: Adjustments

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.

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.

Making Adjustments to Depreciation

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When calculating depreciation, there are many variables (Cost, Depreciation Method, Recovery Periods, First Year Convention and the accuracy of the original calculation) involved that impact the depreciation amount calculated for each accounting period.  This complexity causes differences between software packages.  Since the previously calculated numbers have already been entered into your General Ledger, new software needs to adjust its calculation to “match” the existing total accumulated depreciation amount.

This is accomplished by calculating depreciation and then comparing its calculated amount to your existing total accumulated depreciation.  The difference between the two numbers becomes the adjustment amount.

The key concept that sometimes causes confusion is the adjustment date.  Since the new calculation needs to be adjusted to match your existing total accumulated depreciation, a date must be assigned.  This ensures that the calculations match “as of” the adjusted date.

Example:

  • Old Calculation   $100
  • New Calculation$ 90
  • Adjustment$ 10

Your total accumulated depreciation “as of” the close of the selected accounting period becomes the “Opening Balance” in a new software package.  Reports run AFTER the adjustment date will be accurate.  Reports run BEFORE the adjustment date WILL NOT match original historical calculations, since the calculation is generated by the new software program.

Switching to a new software package for managing fixed assets and calculating depreciation can be a challenge.  Make sure you choose a solution that supports adjustments to depreciation to ensure consistency with the numbers already posted to your General Ledger.

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.