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Today we are going to explore small but can be important for many business scenarios, so today we will see about “Consumption” based depreciation setup.
Consumption Depreciation: This is a depreciation method when we do not want to fix any percentage for depreciation instead, we want to “Depreciate” fixed asset based on its actual consumption. E.g. A “Car” we want to depreciate based on number of KM its runs not based on year. So that means the service life of the fixed asset will be decided based on its consumption.
Another example of this is in “Production” we would like to add depreciation cost of machinery based on usage of machine. In both scenarios we can use consumption-based Depreciation setup.
Note: There is no direct link with production as of now to calculate Depreciation cost for Machines used in production process but if require you can consider small customization to integrate “ Number of actual “ unit consumed in production process.
So, lets start and see how it works in Dynamics 365:
Step-1: Setup Consumption Unit
Consumption unit is unit of measure for defining the consumption for any fixed asset, examples are Kilo meter, Hours etc…
Navigate to, Fixed asset > Setup > Consumption Depreciation > Consumption Unit
Step-2: Setup Consumption Factor
Consumption factor is how many units will be depreciation on defined “Quantity” e.g. for 1000 hours, we want to depreciate 1.5 times of unit consumed.
Navigate to, Fixed asset > Setup > Consumption Depreciation > Consumption Factor
Note: Consumption factor is defined either in Quantity or percentage.
Step-3: Define Depreciation Profile and map to books and Asset group
Step-4: Map to Fixed asset
After defining the setup, we need to create fixed asset and define which Consumption factor and unit will be applicable to the asset
Navigate to, Fixed assets > Fixed asset > Select Fixed asset > Click on Books > Depreciation Tab > Specify required information for consumption depreciation
Step-5: Run Depreciation and create Journal
Fixed Asset > Journal Entries > New > Lines > Proposals > Consumption depreciation
As we can see system has calculated depreciation based on number of units consumed and multiplied by rate defined on asset master.
Here are few more examples:
The following consumption factor is set up for January 31:
The depreciation proposal on January 31 is as follows: Quantity × Unit depreciation 1,000 × 1.5 = 1,500 If the factor that is specified for the fixed asset is a percentage factor, the quantity that is estimated in the Estimated consumption field for the value model of the fixed asset is multiplied by the percentage that is set up for the selected end date. The resulting quantity is then suggested as the depreciation quantity for the period.
The following factor for consumption depreciation is set up for January 31:
The depreciation proposal on January 31 is as follows: Estimated quantity × Percentage × Unit depreciation 2,000 × .10 × 1.5 = 300
That is it for this blog, hope this will help you to use in your implementation.
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