Raul Cocias Asset Management Methods of Recalculation
How the system recalculates depreciation is in part dependent on the calculation type that you specify in the Depreciation Attributes section of the Asset Book - Definition page.
The two methods of recalculation are:
1. Remaining Value Calculation
2. Life-to-Date Calculation
Original Cost+ Additional Cost = New Cost
New cost delivered by number of periods to date = What accumulated depreciation should have been
New accumulated depreciation – old accumulated depreciation = Adjustment to current period
Use the following examples to explain the difference between remaining value and life-to-date calculations: You purchased a piece of machinery 24 months ago: Cost 50,000,Life 60,Method Straight Line, Convention Actual Month, Depr/Period 833.33, Depreciation to date 20,000; NBV 30,000; At this point, remaining value /LtD does not matter. You increase the cost by 5,000 in Month 25 as an Adjustment.
Next, you need to recalculate depreciation. The recalculation method that you selected now applies:
Remaining Value 30,000 (RV) + 5,000 (adj) = 35,000/36 remaining months = 972.22/month for remaining months.
Life-to-Date Two calculations required (Per FASB - if you change depreciation method - must recalculate LtD)
Depreciation for 50,000 (original) +5,000 (adj) = 916.67/mo for 60 months
Depreciation for 24 months = 22,000
Depreciation taken so far = 20,000
Difference to date: 2,000
The system will make the adjusting entry (PDP) in the current period and the new depreciation amount will continue for the remainder of the asset's life