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Dynamics 365 Community / Forums / Microsoft Dynamics GP (Archived) / Fixed Assets - Declini...
Microsoft Dynamics GP (Archived)

Fixed Assets - Declining Balance depreciation method

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Posted on by TrevorL 335

Hi all, I'm trying to get FAM up and running at a client site, but want to get it all agreeing to the current Excel based FA register before going live. They use declining balance depreciation method across the board for all asset groups. With declining balance, the asset never really reaches a zero value, and so is depreciated indefinitely. Dynamics GP FAM requires that you assign a useful life. But if you give a useful life of say, 5 years, GP willl switch off the depreciation after that period, but the written down value is still nowhere near zero, so the client wants to continue depreciating. You could just plug in a useful life of say, 50 years, so the depreciation doesn't switch off, but that just doesn't seem right. Also, if you don't assign a useful life, GP won't do any depreciation calcs or forecasting.

Has anyone come across a situation where the depreciation method used is pure declining balance and if so, how did you handle it/set it up?.

Cheers

Trevor.

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  • Verified answer
    Community Member Profile Picture
    Community Member on at

    Hi, not sure I can help with your specific issue, but I have implemented FA for customers using declining balance. In all cases, assets had a useful life. There has to be a point at which the asset stops contributing to the business? If this is a Corporate book, then the accounting rules relating to amortisation of fixed assets for your region should be consulted. Perhaps your customer can be convinced that they should in fact be using a useful life?

    The other method that is acceptable (I believe!) is to convert to straightline depreciation once the initial period is reached. Say, they set an initial period of 5 years for a particular asset, then once this is reached, they convert to straight line. The reason they would want to do declining balance, is to take / recognise a higher cost per year in the first year - ie front load the depreciation to when the asset is newest and most efficient. In GP you woud probably have to amend the useful life when you set it to straight line. But at least the depreciation would be automatic from then on in..and would avoid the bunching up of asset write offs in any particular year (if you were to write off the asset at the end of its GP useful life when using this with declining balance).

    Just my thoughts...

  • Verified answer
    mpolino Profile Picture
    mpolino on at

    Since all types of Declining balance depreciation can act like a half life by approaching zero but never get to zero, there are really only 3 processes for declining balance and GP handles all three.

    1) Switch to straight line depreciation when the periodic straight line depreciation amount exceeds the declining amount. This is the most common solution since it can be implemented automatically.

    2) Use a salvage value and set the life to depreciate to the salvage value. This puts a floor on the depreciation and keeps it from going to unreasonably small amounts. GP can also handle this by default.

    3) Manually depreciate the remaining amount at the end of the life. This is also an accepted practice but it is less common because a user has to touch the asset at the end of it's life. Manually chaning the book value for YTD and LTD depreciation at the end of the assets useful life will generate a final depreciation entry to depreciate the asset to 0.

     Realistically, depreciating an asset forever is not a generally accepted accounting principle. Your client needs to finish depreciating the asset using one of these three methods.

     Mark

  • Rosemary Profile Picture
    Rosemary 10 on at

    Good day,

    Were you able to come to a decision as to how this should be set up? I  am in the same position, they do not use a useful life value. I have been experimenting with a 20 year useful life  value.

    The depreciated amounts are close to those on the Excel Register that is used, I am using that as a control.

    Regards

    Rosemary

  • Community Member Profile Picture
    Community Member on at

    Hi Rosemary,

    I haven't come up with a better solution than Marks. You can't depreciate indefinitely, so some switch over to straight line is inevitable.

    In terms of what you are doing now, I would take a view on the difference between GP and the XL sheet. If its not material, then the GP figures should be acceptable?

    Ian.

  • Rosemary Profile Picture
    Rosemary 10 on at

    Thanks for your response, the differences  are a few dollars and / or cents in some instances.  I have suggested they run parallel for a few months.

    FA is manageable enough to make asset changes and document  these changes before posting to the GL, from what I have seen.

    Thanks again for your response.

    Regards

    Rosemary

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