The calculation of depreciation is a complex process involving many variables.
The cost basis amount is spread over recovery periods based on a depreciation method and first year convention. The depreciation amounts start in the first period of the in service date and run until the asset is fully depreciated. While the calculation is complex, the monthly numbers do not change unless one of the variables are altered:
- Service Date
- Depreciation Method
- First Year Convention
- Recovery Life
In order to speed processing, Bassets eDepreciation calculates depreciation and then stores five years worth of monthly detail to our database. These stored numbers can then be dynamically queried to provide an instant screen refresh on our Home Page for any single accounting period or group of periods. If any of the calculation variables are altered during the life of the asset then the calculated numbers are updated at the time of the change.
The concept of a “base year” is utilized to facilitate the quick retrieval of stored depreciation. The base year is typically the current calendar year as part of a five year window. This allows for the current year, the two previous years and two future years in detail of sixty (5 years times 12 periods per year) total periods. Home Page refresh and reports will quickly aggregate the stored numbers without having to recalculate each time.
Changes to individual assets are handled at the time of the change and the stored numbers are updated with a single recalculation. When you enter a new year a mass recalculate is necessary to move the five year window forward into the current accounting periods. So if your base year is 2014, the five year window would cover all of the detail periods in the years 2012, 2013, 2014, 2015 and 2016. Changing the base year to 2015 would then move the five year window forward to cover the years 2013 – 2017. This base year concept greatly reduces the time required to generate summaries and reports and only requires a mass recalculate when the base year is changed.
We did an earlier post on Dynamic Summary of Current Accounting Period Depreciation Results that highlights some of the benefits of a base year and stored calculations.
Questions? Comments? Let us know in the comments section below.
More information about Bassets eDepreciation software can be found at Bassets.net. While there you can register for our live webinar, download a free evaluation copy and get a personalized pricing estimate.