When you perform a financial adjustment on an asset such as a cost adjustment, a depreciation method change, or a date placed in service change, the effect that the adjustment will have depends on whether the adjustment is expensed or amortized.
If the transaction is an Expensed Adjustment, the effect of the adjustment will be from the Date Placed In Service (DPIS) of the asset. Oracle Assets recalculates depreciation using the new information starting from the DPIS and derives the expected depreciation. The expected depreciation reserve will be compared with the existing depreciation reserve of the asset and any excess or deficit amount will be accounted in the period in which the adjustment is done.
If you want the adjustment to be effective from a specific period and not from the DPIS, the transaction needs to be an Amortized Adjustment. For amortized adjustments, the effect of the adjustment will be from the period in which the amortization start date falls and the accumulated depreciation prior to the amortization start date will not be re-validated. When an amortized adjustment is performed, Oracle Assets spreads the adjustment amount over the remaining life or remaining capacity of the asset.
Note that once an asset has an amortized adjustment, it is no longer possible to perform an expensed adjustment on that asset.
How do you perform an Expensed or an Amortized adjustment?
While performing the transaction, whether it is expensed or amortized depends on these selections:
Here is an example of how expensed and amortized adjustments work:
Let's take an asset that has these parameters:
Cost = 12000
DPIS = 01-JAN-2016
Depreciation method and life = STL for 12 months
In the Aug-16 period, the life is changed to 15 months.
If the adjustment is expensed:
The depreciation, with an asset life of 12 months, would be 12000 / 12 = 1000 per month.
The depreciation, with an asset life of 15 months, would be 12000 / 15 = 800 per month.
Until the Aug-16 period, the asset was depreciating based on a life of 12 months. The existing depreciation reserve of the asset is 1000 * 7 months = 7000.
Based on the new life, the accumulated depreciation should be 800 * 7 months = 5600.
The depreciation catch-up in Aug-16 is 7000 - 5600 = (1400).
From the Aug-16 period onwards, the monthly depreciation for the asset will 800.
Now, if that adjustment is amortized:
The depreciation, with an asset life of 12 months, would be 12000 / 12 = 1000 per month.
The depreciation reserve amount charged up to Aug-16 is 1000 * 7 months = 7000.
So, the net book value of the asset as of Aug-16 is 12000 - 7000 = 5000.
The remaining life of the asset as of the Aug-16 period is: Total life – life already completed = 15 months – 7 months = 8 months.
From the Aug-16 period onwards, the monthly depreciation for the asset will be Net Book Value / Remaining Life = 5000 / 8 months = 625.
|
Asset cost |
12000 |
|
|
DPIS |
12-Jan-16 |
|
|
Life in months |
12 |
|
|
In Aug-16 (Life in months) |
15 |
|
|
Method |
STL |
|
|
If Depreciation is expensed |
||
|
Period |
Depreciation Amount |
Adjustment |
|
16-Jan |
1000 |
|
|
16-Feb |
1000 |
|
|
16-Mar |
1000 |
|
|
16-Apr |
1000 |
|
|
16-May |
1000 |
|
|
16-Jun |
1000 |
|
|
16-Jul |
1000 |
|
|
16-Aug |
800 |
-1400 |
|
If Depreciation is Amortized |
||
|
Period |
Depreciation Amount |
Adjustment |
|
16-Jan |
1000 |
|
|
16-Feb |
1000 |
|
|
16-Mar |
1000 |
|
|
16-Apr |
1000 |
|
|
16-May |
1000 |
|
|
16-Jun |
1000 |
|
|
16-Jul |
1000 |
|
|
16-Aug |
625 |
|
|
Total Asset Cost |
12000 |
|
|
Total Depreciation |
7000 |
|
|
NBV |
5000 |
|
|
Remaining Life (15-7) |
8 |
|
|
New Depreciation from Aug-16 |
625 |
|
Asset cost |
13500 |
|
|
DPIS |
17-Sep-18 |
|
|
Life in months |
12 |
|
|
In NOV-18 Cost changed to |
15000 |
|
|
Method |
STL |
|
|
If Depreciation is expensed |
||
|
Period |
Depreciation Amount |
Adjustment |
|
18-Nov |
1250 |
125 |
|
18-Oct |
1125 |
|
|
If Depreciation in amortized |
||
|
Period |
Depreciation Amount |
Adjustment |
|
18-Nov |
1261.36 |
|
|
18-Oct |
1125 |
|
|
Asset Cost in OCT-18 |
13500 |
|
|
Accumulated Depreciation in OCT-18 |
1125 |
|
|
NBV in OCT-18 (Asset Cost - Accumulated Dep) |
12375 |
|
|
New Cost in NOV-18 |
15000 |
|
|
Adjustment in Cost (New Cost in NOV-18 15000 - Cost in OCT-18 13500) |
1500 |
|
|
New NBV in NOV-18 (NBV of OCT-18 12375 + Adjustment in Cost 1500) |
13875 |
|
|
Life Remaining in Months (12-1) |
11 |
|
|
New
Depreciation from NOV-18 |
1261.363636 |
