Allow Accumulated Depreciation/Amortisation accounts in journals

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Nay, Nay and Nay. Work right through your modelling using my figures.
Stage one, existing asset value 5000 with Accum Depn of 2000. That means the P&L has received to date 2000 in expense (deduction).
Stage two (using your assumptions), new asset value 9000, so 4000 gets added to the asset value, the current Accum Depn 2000 gets reversed and these two combined get posted to the BS Equity revaluation reserve 6000
Stage three, new asset valued 9000 gets overtime depreciated to zero so a Accum Depn of 9000. That means the P&L has received another 9000 in expense (deduction).

So to review - the asset which has had a max value of 9000 has also generated 11000 in P&L expense (deduction). So the question arises - what if that asset then gets revalued again to 3000 ?

Based on your assumptions, this new asset value 3000 gets added to the asset value, the (new) current Accum Depn 9000 gets reversed and these two combined get posted to the BS Equity revaluation reserve 12000.

So you now have an asset worth 3000 with zero Accum Depn, yet it has already generated to the P&L 11000 worth of expense (deduction) and potentially could generate another 3000 in P&L expense (deduction) - so a total of 14000. Meanwhile the BS Equity revaluation reserve holds with regards to this asset 18000 in value (for an asset worth 3000).

Then the idea behind the move is flawed.

Assets get written off. Accumulated depreciation is (a) not an asset and (b) an arbitrary calculation so how can something mathematical be written off.

But as disclosed - that illustration is flawed (and as you will discover) due to rigidity of the control accounts.
Most sub-accounts (customer, supplier, inventory) only fall under one control accounts, however a fixed assets sub account falls under two control accounts - Fixed Assets and Accumulated Depreciation - hence the inability to journalise directly to Accumulated Depreciation.

No it is definitely not. You can’t create an artificial asset value (1650) to achieve an actual book value (1200). What if the current depreciation is 850, this would imply that you need an artificial asset value of 2050 to achieve the same book value of 1200. This 2050 would be a complete falsity - not only is it a 71% overstatement of the assets value but also (and more importantly) this would allow an asset worth 1200 to be accumulatively depreciated up to 2050.

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@OLUBOYE you could achieve with this I’m sure. But a “revaluated” asset has to have a new record of depreciation started.

For example let say you are converting an asset used by the business into an investment property and want the asset revaluated to show the real value. Don’t you think it best to start a whole depreciation record again after the revaluation and reclassification?

But all the same it good to be able to directly involve the accumulated depreciation in journals.

Revaluation also mean change in accounting estimate for depreciation and therefore a start from scratch in depreciation calculation prospectively

Honestly I don’t know why all these confusion things were implemented but that the practice. :smiley: :

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@Brucanna yeah it so confusing. But that the practice. So basically the idea is to begin accumulating depreciation for the revalued asset.

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Agreed, but not by transferring the existing Accum Depn (an accumulated arbitrary expense) to Equity.

Agreed again, but only after reversing / cancelling out the previous Accum Depn - exactly the same as if you had disposed of the first asset and then acquired a replacement asset - you disposed of the first valuation (cost + depn) and acquired a replacement valuation.

Only because the logic is being polluted by trying to convert a stored accumulated expense into Equity. Depreciation is only a calculation, so therefore, how can a calculation become Equity.

Just look at the simple maths- an asset gets revalued from 5000 to 9000, therefore the Equity asset revaluation accounts becomes 4000, you can’t combine that movement in asset value with a stored accumulated expense value of 2000 to become 6000 as the actual revaluation is only 4000 - the Equity asset revaluation account is distorted / inflated by 2000.

Perhaps a profit stripping practice but not an accounting standards practice.

Absolutely nothing wrong with that idea as it stands, but the problem lies within the treatment of the pre-existing Accum Depn, (an arbitrary expense becoming Equity) not the revaluation in itself.

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@lubos is aware of the requirement to allow journal entries transferring the credit to the depreciation expense account resulting from the adjustment to accumulated depreciation on revaluation of a fixed asset to an asset revaluation reserve account.

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Great @tony

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@Abeiku - did you take special note of @tony comment:

“to allow journal entries transferring the credit to the depreciation expense account”

Depreciation Expense account NOT Equity Revaluation Reserve Account

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Sounds like @tony has contacted @lubos to enable a mechanism to carry out my request right?Sounds like the ability to transfer the credit from the Acc Dep. account into Equity account after you have written off the acc dep which lands in the Dep exp account.

Or I didn’t get him.

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You didn’t get him - reread the statement : “transferring the credit to the depreciation expense account”

Or let me expand : “transferring the (accumulated depreciation) credit to the depreciation expense account”.

NOT as you have written : “transfer the credit from the Dep. Expense account”.

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Yes I have done the edit :grin:

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Please Explain:
a) How can an arbitrary mathematical calculation (Acc Dep) be transferred to an Equity account ?
b) The Acc Dep represents both a reduction in an Asset value and a reduction in Equity due to reduced Retained Earnings from the Depn expense, so how does that same expense value
now become to represent a direct increase in Equity value ?
c) When the asset is finally disposed of, what becomes of the transferred Acc Dep sitting in Equity ?

No, re-read the statement - “@lubos is aware of the requirement” and probably has been for some time.

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Transfer to retained earnings

Don’t look at it that way, it a debit and credit exchange. Asset could be debited and revaluation surplus account credited. But on the face of the accounts it better to see Acc dep zero if the asset has been revalued. Especially if the asset is to be reclassified to held for sale or held for lease or held as investment property after the revaluation.

Revaluation (gain/upward revaluation) is considered other comprehensive Income on possession of the asset, it is therefore only normal to reverse it (Acc depreciation) and land it into Rev account in equity and then retained earnings after realisation of the asset.

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Fixed Asset Accounting in Not For Profit Organisations

How to report fixed asset items if they were funded by a donor.
There is a dilemma between capitalising the asset or expensing the whole asset since the asset was meant to be used for the program period (Usually one year).
The solution is capitalising the asset but debiting the same amount in the project expense lines in the income statement and crediting a liability account (Capital Asset Fund).

Result: Fixed assets appear on the top of the balance sheet. Grant funds are charged with capital expenditure in the year of purchase. The bottom of the balance sheet shows Capital Grants fund, equal to the net book value of assets funded by grants.

At the end of every year you will debit the liability (Capital Grant Fund) account with the depreciation amount and credit accumulated depreciation account until the liability account is zeroed (asset completely depreciated).

The problem is that, I can’t access accumulated depreciation in journals where I could debit the liability account and credit accumulated depreciation. I can however access the asset itself in journal entry to effect depreciation (reducing balance Method) but that would be different from the rest of fixed asset (not funded by grant) which are accounted for with Historical cost and an accumulated depreciation account.

Also I could easily manage this if I could assign accounts for depreciation expenses (direct all the depreciation of an asset into a preferred account, Debit Preferred account, and credit accumulated depreciation). Another use for this is, users who want to Separate depreciation of Say Factory Asset (production plants or Machines), Selling and Distribution Asset (delivery Vans for E.g.) and Administrative Fixed assets (Computers, furniture.) could use this function to charge depreciation to the right places in arriving at true Gross profits.

I could easily create accounts to manage this situation but I want the donor sponsored asset to be in the Fixed Asset Tab/Registry.

Currently there are asset which are partly funded by Donors and partly funded by the organisation which complicates the matter, if I see the accumulated depreciation accounts in journal entries however, that wouldn’t be a problem.

Going forward @Lubos, allow depreciation expense accounts and accumulated depreciation accounts in journal entries and if possible allow custom creation of these accounts. Different organisations have different reporting needs and making this available will enable true and fair reporting.

Also how can you charge the use of machinery or equipment for production into a produce in Production order? (Charging depreciation directly into the cost of a product.)
All help is welcome.

https://www.mango.org.uk/guide/fixedassetspolicy

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Add non-inventory costs, posting them to an expense account set up for this purpose. That solves your production order issue. I am specifically not addressing anything else in your post. What you do with expenses after they are recorded may be wrapped up in your bigger concern.

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So how about letting the depreciation expense account show in the list when you to want add an expense account? The deprecation expense account will be credited and the inventory item debited to capitalise the depreciation expense to the inventory item produced. Currently depreciation expense account is ghosting on us :smiley:

Added: Yes planning must be done ahead to know annual depreciation and the amount to charge to a unit of inventory produced.

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Depreciation functions are all hard-coded in the program, and they are intertwined with the asset register subaccounts, so I doubt that could be done.

Personally, I have never seen depreciation factored into production order costs, only direct expenses. That would obscure the picture on fixed asset book value, because you would be transferring asset value to inventory.

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I don’t think that a good idea myself, that just by the way, anyway i don’t think it will be difficult to show the depreciation accounts in journals.

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It’s true P&L accounts related to fixed/intangible assets are hard-coded in the program but I’m planning to add some more flexibility.

It’s already possible to select any P&L account for inventory items or payslip items. The same can be implemented for fixed/intangible assets.

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Thanks @lubos I hope it arrives soon.

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It appears that Payslip Earning Items are limited to P&L Income accounts only and for Payslip Deduction Items, “no” P&L accounts can be selected at all (Ver 18.7.74)

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