We have an asset that we acquired and placed in service last year but it did not get entered into Bassets eDepreciation until several months later. How do we account for the depreciation we missed?
Yes, this is a tricky question and we have created a feature called Adjustment to Basis to handle this situation. If you enter the asset the purchase price on the original service date then depreciation will be calculated in the previous year and will change your prior accumulated number.
The solution is to enter the asset with zero cost to avoid any depreciation amounts. Then enter an adjustment to basis with a date when you want to actually start the calculation. Bassets eDepreciation will calculate the missed depreciation and then add that amount to the adjustment period.
Let’s look at an example. Below is an asset placed in service in October of 2015 without a purchase price. You can see that we then apply a $6,000 adjustment to basis with a March 2016 adjustment date:
The $6,000 amount is easy to illustrate the effect since this results in $100 (6,000 / 60) depreciation amount per period. A 5 year life with 12 periods per year is shown below:
Since this asset was place in service in October of the previous year, we missed 3 (Oct, Nov, Dec) periods of depreciation. Additionally we missed 2 periods (Jan, Feb) in the current year. So a March adjustment accounts for the 5 missing periods by adding $500 to the normal $100 to result in $600 of depreciation in the adjustment period. You can see that the remaining life is then calculated at the normal $100 per period.
Adjustment to Basis is a very powerful feature that allows you to adjust depreciation basis without impacting monthly depreciation that has already booked to your general ledger. This is just one example but there are many other situations where this feature can account for changes in cost.
Questions? Comments? Let us know in the comments section below.
More information about Bassets eDepreciation software can be found at Bassets.net or depre123.com. At Bassets register for our live webinar, download a free evaluation copy and get a personalized pricing estimate. At depre123 try out our Free Depreciation Calculator and check out our cloud based fixed assets application.