Finance | Project Operations, Human Resources, ...

How Fixed Assets Amortization rate is calculated - GP 2013 R2

(0) Share

Report

Posted on by Imad Kassoumah

3,235

Hi,

I created an assets with a value of 3000 and depreciation method is amortization with average convention is next month and rate 2.5%.

placed and in service on 01/01/2020. so, 3000*2.5%=75/year, (75/ 12)=6.25/month

6.25*11(first year) =68.75 per year.

I changed the amortization rate to 3.5% and selected Recalculate button, the system changed yearly depreciation to 96.25 and periodic rate to 9.0 which is not understandable.

according to my calculation it should be 8.75.

Do you have any clue?

Thanks.

Imad Kassoumah

I have the same question (0)

All responses (7)

Answers (0)

Suggested answer

Josh Page on at

Like (1)

Report

For amortization the yearly calculations are below.

Code	Calculation
Daily	Amortization Amount * 365 (or 366 if leap year)
Weekly	Amortization Amount * 52
Monthly	Amortization Amount * 12
Quarterly	Amortization Amount * 4
Yearly	Yearly Depreciation Amount = Amortization Amount
Percentage	(Cost Basis - (LTD Depreciation - YTD Depreciation)) * Percentage
Rate	(Cost Basis - Salvage Value - Special Depreciation Allowance) * Rate

The Initial Allowance Percentage field in the Asset Book window can be used in conjunction with the Amortization method of depreciation. If you enter a percentage, the percentage of the cost of the asset will be included in the first year depreciation amount, in addition to the normal first year depreciation amount.

========================

So with that then the year would by (3000-(0-0)*.035=105 we then need to get the first year rate adjusted since it gets modified by the percent of the year we have. With next month being our averaging convention we are removing 1 period days from the year so 105*(11/12)=96.25. So far we match with what GP produced.

So now onto the period depreciation rate, 96.25\11 does equal 8.75, (and when I just ran this myself i did get 8.75) however this depends on your calendar setup. If your FA calendar is not a calendar year (for example a 4/4/5 of fiscal calendar) this can cause the monthly averaging convention to not come out as expected, especially if 2/1 is not the start of the period. You could also be seeing numbers off from what you expect if the book is not set to period depreciation (if its set to daily depreciation) in which case we would multiple the number of days in the period by the daily rate (for the first year that would be .2882.)

So what I would check.
1) Check your FA calendar. Unless it's a straight calendar year (1/1-12/31) you should be using next period averaging convention instead of next month averaging convention (It's just easier to always use the period averaging conventions instead of the month averaging conventions in most cases regardless).
2) Check if the book is set to period or daily depreciation (tools>Setup fixed assets>book)

Was this reply helpful? Yes No

Imad Kassoumah 3,235 on at

Like (0)

Report

Hi Josh,

Thanks for your reply.

The calendar is set for 12 periods and the book is set for period.

I created a new asset and used Next Period as the average convension instead of next month.

I did the same tests but the system is still giving the same results when I change the rate from 2.5% to 3.5%, I mean the depreciation value calculated by the system is 9.0 instead of 8.75 as expected.

Thanks again.

Was this reply helpful? Yes No
Josh Page on at

Like (0)

Report

If you enter the asset originally with an amort rate of 3.5% does it calculate as expected?

Was this reply helpful? Yes No
Imad Kassoumah 3,235 on at

Like (0)

Report

Yes it does.

Was this reply helpful? Yes No
Josh Page on at

Like (0)

Report

Okay so if it's entering correctly, when you do the change from 2.5 to 3.5, what recalc option are you selecting? (Reset Life, Year, or recalculate). In your example, you should select the life option.

Thanks

Was this reply helpful? Yes No
Imad Kassoumah 3,235 on at

Like (0)

Report

Hi,

I do not want to go back and adjust the previous posted deperciations as the system will do.

I'm looking know the formula GP is using and calculating the period depreciation from the time I change the rate..

The yearly depreciation amount(rate) is always correct as calculated but the period depreciation rate is not as expected.

Can I have the formula?

Thanks.

Was this reply helpful? Yes No
Imad Kassoumah 3,235 on at

Like (0)

Report

Hi,

Another example,

I created a new asset on 01/01/2020 with a cost value of 3000 and the rate 2.0%

3000 * 2.0% = 60

60 / 12 = 5 per period

5*11 = 55/year -->this is maching GP.

I ran assets depreciation 02/29/2020, results ar ok.

I changed the rate to 3.0 with Recalculate button.

GP is showing Yearly Deprciation Rate 82.5 (3000*3.0% *(11/12)) =82.5, correct.

GP is showing 7.75 for Periodic Depr. Rate !!!!How?

Do you have any explaination?

Thanks

Was this reply helpful? Yes No

Join the conversation

Community site session details

How Fixed Assets Amortization rate is calculated - GP 2013 R2

Helpful resources

Quick Links

Responsible AI policies

Neeraj Kumar – Community Spotlight

Congratulations to the November Top 10 Community Leaders!

Leaderboard > Finance | Project Operations, Human Resources, AX, GP, SL

Featured topics

Product updates

Community site session details

How Fixed Assets Amortization rate is calculated - GP 2013 R2

Helpful resources

Quick Links

Responsible AI policies

Neeraj Kumar – Community Spotlight

Congratulations to the November Top 10 Community Leaders!

Subscribe to this forum!

Select categories

Leaderboard > Finance | Project Operations, Human Resources, AX, GP, SL

Featured topics

Product updates