Depreciating Assets Beyond The Useful Life - Oracle Help Center

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Depreciating Assets Beyond the Useful Life

You can depreciate an asset in the years following its useful life if the asset uses a straight-line or flat-rate depreciation method. You must specify a depreciation limit, defined as a flat amount or as a percentage. Oracle Assets depreciates the asset up to the salvage value during the normal useful life. Then Oracle Assets continues to depreciate it, up to the depreciation limit you choose, in periods after the useful life has ended.

You can set up a default limit for each asset category, book, and range of dates in service in the Asset Categories window. See: Entering Default Depreciation Rules for a Category.

For assets using a straight-line depreciation method, you can use the Set Extended Life window to control the amount of depreciation expense taken for each period. If you do not specify an extended life in years, Oracle Assets continues to depreciate the asset at the same rate it depreciated during the last fiscal year of the asset's normal useful life.

Additions

When you add an asset to a book, category, and date placed in service range for which you set up a default depreciation limit as an amount, Oracle Assets calculates the recoverable cost using the following formula:

Recoverable Cost = Cost - Default Depreciation Limit

For example, an asset cost of 100,000 yen with a depreciation limit of 1 yen has a recoverable cost of 100,000 - 1 = 99,999 yen.

When you add an asset for which you set up a default depreciation limit percentage, Oracle Assets calculates the recoverable cost using the following formula:

Recoverable Cost = Cost X Default Depreciation Limit

For example, an asset cost of 100,000 yen with a depreciation limit of 95% has a recoverable cost of 100,000 X 95% = 95,000 yen.

If you add the asset using Detail Additions, Oracle Assets shows the recoverable cost in the Books window. You can override this value if necessary. If you add the asset using QuickAdditions or Mass Additions, Oracle Assets automatically calculates the recoverable cost for the asset. You can adjust the recoverable cost at any time during the normal useful life of the asset. This does not affect the depreciation expense during the normal useful life, unless the recoverable cost is less than the cost less the salvage value.

Note: You cannot adjust the recoverable cost for assets that do not depreciate using the special depreciation limits. For these assets, the recoverable cost must equal (cost - salvage value).

Depreciation

Depreciation Methods

If you define a depreciation limit, you must use a straight-line or flat-rate depreciation method for the asset.

Depreciation During Normal Useful Life

During the normal useful life of the asset, the amount of depreciation taken per fiscal year depends solely on the cost less the salvage value. For example, you place in service an asset with a cost of 100,000 yen and a salvage value of 1000 yen. The asset depreciates using a straight-line method and a nine year life. Regardless of the depreciation limit, the depreciation expense for this asset is (100,000 - 1000) / 9 = 11,000 yen per year for the first nine years.

Depreciation During Extended Life

In the years following the useful life, Oracle Assets continues to depreciate the asset until accumulated depreciation equals recoverable cost. Note that recoverable cost is calculated by (cost - depreciation limit amount) or (cost X depreciation percent limit). By default, the amount of depreciation taken per period is the minimum of the following:

• Depreciation expense per period in the last fiscal year of the useful life

• Recoverable cost less the life-to-date depreciation

For assets depreciating under a straight-line method, the corresponding formula is:

Depreciation per period =

min ( (recoverable cost - life-to-date depreciation),

(cost - salvage value) / life in periods) )

For assets using a straight-line depreciation method, you can control the depreciation expense taken per period in the extended life. To do this, specify the length of the extended life in years in the Set Extended Life window.

Depreciation per period =

1 Salvage Value

_____________ x ___________________

# periods/year Extended Life (years)

Example 1

You place an asset in service as follows:

• Cost = 100,000 yen

• Salvage value = 10,000 yen

• Depreciation limit = 1 yen

• Useful life = 10 years

• Depreciation method = Straight Line

Year of Life	Annual Depreciation (Yen)	Accumulated Depreciation (Yen)
1	9000	9000
2	9000	18,000
:	:	:
9	9000	81,000
10	9000	90,000 = (cost - salvage value)
11	9000 = less of (9000, 9999)	99,000
12	999 = less of (9000, 999)	99,999
Table 1 - 16. (Page 1 of 1)

Recoverable cost is (100,000 - 1) = 99,999 yen.

For the first ten years, Oracle Assets takes an annual depreciation expense of (100,000 - 10,000) / 10 = 9000 yen. If there are four periods per year and you are dividing depreciation evenly, Oracle Assets takes a depreciation expense of 2250 yen per period.

In the 11th year, depreciation expense is also 9000 yen for the year, or 2250 yen per period.

In the 12th year, the depreciation expense is 999 yen. Thus Oracle Assets fully reserves the asset in the first period of this year. Note that in the final year, Oracle Assets does not divide the remaining recoverable cost evenly among the periods in the fiscal year. The depreciation expense per period remains the same in all but the last period of life, when it is equal to the amount necessary to fully reserve the asset.

Example 2

You place another asset in service as follows:

• Cost = 500,000 yen

• Salvage Value = 50,000 yen

• Depreciation percent limit = 95%

• Useful life = 5 years

• Depreciation method = Straight Line

Year of Life	Annual Depreciation (Yen)	Accumulated Depreciation (Yen)
1	90,000	90,000
2	90,000	180,000
3	90,000	270,000
4	90,000	360,000
5	90,000	450,000 = (cost - salvage value)
6	25,000	475,000
Table 1 - 17. (Page 1 of 1)

Recoverable cost is (500,000 X 95%) = 475,000 yen.

For the first five years, Oracle Assets takes an annual depreciation expense of (500,000 - 50,000) / 5 = 90,000 yen. If there are 12 periods per year and you divide depreciation evenly, Oracle Assets takes depreciation expense of 7500 yen per period.

In the sixth year, the depreciation expense is 25,000 yen for the year. Depreciation expense is 7500 yen per month for the first three months, and 2500 yen in the fourth month.

Example 3

You place a third asset in service as follows:

• Cost = 4,000,000 won

• Useful life = 4 years

• Salvage value = 400,000 won

• Depreciation limit = 1,000

Based on this information, the depreciable basis (4,000,000 - 400,000) is 3,600,000. The recoverable cost (4,000,000 - 1,000) is 3,999,000. The annual depreciation amount (3,600,000/4) is 900,000.

The depreciation over the useful life of the asset would be as follows:

Year	Cost (Won)	Salvage Value	Deprn Basis	Annual Deprn.	NBV
1	4,000,000	400,000	3,600,000	900,000	3,100,000
2	4,000,000	400,000	3,600,000	900,000	2,200,000
3	4,000,000	400,000	3,600,000	900,000	1,300,000
4	4,000,000	400,000	3,600,000	900,000	400,000
Table 1 - 18. (Page 1 of 1)

When the asset has completed its useful life, you query the asset in the Set Extended Life window. You enter the number of years to depreciate the salvage value, for example, three years.

The depreciation over the extended life of the asset would be as follows:

Year	Cost (Won)	Salvage Value	Deprn Basis	Annual Deprn.	NBV
5	4,000,000	400,000	400,000	133,333	266,667
6	4,000,000	400,000	400,000	133,333	133,334
7	4,000,000	400,000	400,000	132,334	1,000
Table 1 - 19. (Page 1 of 1)

To set the extended life of an asset:

1. Navigate to the Set Extended Life window.

2. Query the asset for which you want to set the extended life by asset number or description.

3. Navigate to the Books field.

A list of values window appears containing the books in which you can set the extended life of the asset.

4. Select the applicable book.

5. Enter the number of years over which you want to depreciate the salvage value.

6. Save your work.

Restrictions

You cannot perform the following transactions on an asset that is beyond its normal useful life:

• Cost Adjustments

• Life Adjustments

• Salvage Value Adjustments

• Revaluations

• Prior Period Transfers

• Invoice Transfers

• Addition of a Mass Addition to an Existing Asset

• Date Placed In Service Change

• Prorate Convention Change

• Depreciation Method Change

• Invoice Adjustments

• Prior-Period Retirements

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