Fixed asset depreciation question/problem

I have a couple fixed assets for a company, and I noticed something strange. I am going to simplify the situation with just one asset.

Asset was purchased mid April 2020. If I go to reports > fixed assets > depreciation calculation worksheet, make new report for January 2020, asset is shown, book value is empty, depreciation rate is correct, depreciation days is shown (31), but no depreciation is calculated, as it should be, since asset was acquired at a later date.

If I make a new report for April 2020, depreciation is calculated for the whole month, not for the days left in April as if the asset was purchased on April 1st 2020. This could be accounting standard, someone will definitelly point it out.

What is definitelly a bug is when I make a new report for the whole year (01.01.2020 - 31.12.2020), depreciation is calculated for whole 365 days, based on depreciation rate of the asset, as if the asset was purchased on January 1st 2020. I guess formula checks wether the asset was acquired in selected date range, and if yes, do depreciation for whole selected period.

This way I cannot trust or use depreciation for the whole year, which is not huge problem, but my first 2020. financial reports were wrong after depreciating assets for the whole year at once.

The depression worksheets calculation method only results in the entered annual depreciation when the worksheet is used to calculate exactly one year at a time.

At the beginning and end of an assets life one calculation can be done to estimate the full part year depreciation, To do this Managers worksheet uses a linear approximation (of the underlying multi year exponential decrease in asset value).

For all other time periods external manual calculation of depreciation is required.

For more extensive discussion see Depreciation calculation is not correct - #17 by Patch

@cavlovic, you should not read only the post @Patch linked. You should read that entire thread to gain some appreciation for how contentious selection and implementation of depreciation methods can be.

You should also read the Guide, Calculate depreciation automatically | Manager, very carefully. In it, you will discover that what you have tried to do with an asset purchased part way through an accounting period cannot be done the way you tried to do it. And your assumptions about the program’s operation are completely incorrect.

The fact is, there is definitely not a bug with the depreciation worksheet. But it is unquestionably hard to use properly and cannot be used at all for the most common depreciation method (straight-line). But it works exactly as described in the Guide, but no other way. Every note and caution statement must be read and understood. All instructions are critical.

Unfortunately, the promised options for more flexibility have never materialized. Until they do, many users are still calculating depreciation manually and entering it through the Depreciation Entries tab.

1 Like

Thanks for your replies @Tut and @Patch

@Tut , I dissagree that it cannot be done. Actually I did it in 2 hours yesterday in excel using macro. Like you said, this is straight-line calculation method, which is simplest of them all. already checks whether or not asset was purchased before selected end date of depreciation report. Lets make a step by step calc with a simple example:

Asset: Computer
Purchase date: Jan 15, 2020.
Value: 1.460 EUR
Depreciation: 50% (two year depreciation)
Depreciation report range: Jan 15th - Jan 31

  1. get asset value, acquisition date and depreciation % from asset table,
  2. calculate daily depreciation value based on those: DayVal = (1000 * (365 * (100%/50%))) = 2 EUR daily deprectiation
  3. get number of days depreciation needs to be calculated for: Days = Jan 15th to Jan 31st = 16 days total)
  4. Dep = DayVal * Days = 32 EUR for selected period.
  5. IF(Dep < asset residual value) { Dep } else { asset residual value }

I suppose there is more to this as it can’t be this simple fix, I just don’t know why it would be more complicated. It’s only a report being generated, entries are created based on those reports if user chooses to.

In the end, if for some reason this calculation cannot be done, the report should be removed from reports completely as it just doesn’t work correctly. For someone who has few assets it’s not that important or timesaving, while for others that have many assets, there is high probabily of error.

I meant it cannot be done in Manager using the automatic calculation worksheet, which is what you said you were trying to do. Obviously the calculations can be performed mathematically.

You are right about one thing. There is a lot more to it than your simple example shows. For one thing, you only illustrated straight-line depreciation over a single period, without looking at the effect on the next period of the resulting entries that would be posted. For another, your example was with straight-line depreciation, while the worksheet was designed for the declining balance method, where the inputs to the depreciation calculation change after each prior period has been calculated and posted.

It is not that it cannot be done, only that it has not yet been done. The worksheet functions perfectly for what it was designed to do. Your issue is that it was not designed to do what you want done.

I agree. And I have made some detailed recommendations for improvements and additions. Whether those are acted upon is up to the developer. Unless they are, the worksheet is not useful for me. But external calculations like you describe are not that difficult and less prone to error.