Asset Accounting : Scrap Value and Cutoff Value

It may sometimes be necessary to depreciate assets not to net book value zero, but only up to a scrap value or cutoff value.

 

There are two ways of specifying the scrap value:

 

o             By assigning a scrap value key to the depreciation key used in the depreciation area

o             By entering an absolute scrap value in the asset master data for the depreciation area

 

Path: Financial Accounting (New) ® Asset Accounting ® Depreciation ® Valuation Methods ® Further Settings ® Define Cutoff Value Key

 

You can assign a scrap value key to each depreciation key in its definition.

 

Start date: capitalization date

Percentage: 5%

Validity period: 5 years

A cutoff percentage rate of 5% is valid for assets that are no older than 5 years old according to their capitalization date.

 

 

For more info . . . on Scrap Value

Depreciation Types in Asset Accounting :

Ordinary depreciation  - is the planned deduction for wear and tear during normal use of an asset.

Special depreciation  - represents deduction for wear and tear on an asset from a purely tax-based point of view. This form of depreciation allows percentage depreciation, possibly staggered within a period allowed by the tax authority, without taking into account the actual wear and tear on the asset.

Ordinary depreciation - reflects the deduction for wear and tear during the normal use of the asset. Unusual influences, such as damage which leads to a permanent decrease in the value of the asset, are covered by unplanned depreciation.

Transfer of Reserves/Reduction of APC - Reduction of APC allows you to reduce the depreciation base of an asset by a given amount. This type of depreciation has to be posted manually. It cannot be posted automatically using depreciation keys like the other depreciation types.

Interest - For internal accounting purposes, it is also relevant to evaluate the fixed capital tied up in an asset in addition to the depreciation. You can account for the tied up capital by calculating imputed interest. The system treats the calculation of imputed interest as a depreciation type, since it is also controlled by depreciation keys and calculation methods, similarly to the calculation of depreciation..

Depreciation Calculation Methods - Base Method:

 

 

Percentage from Useful Life / Percentage from Remaining Useful Life

There are two variants of this depreciation calculation method:

·        The system determines a depreciation percentage rate from the total useful life; the rate remains the same for each year.

·        The system calculates a new percentage rate for each year based on the remaining useful life. The depreciation percentage rate rises constantly until it reaches 100% in the last year of the useful life.

 

Total Percentage Rate in the Tax Concession Period

This method allows you to depreciate a certain percentage rate from the depreciation base within a tax concession period. In order to calculate the current periodic depreciation, the system first determines the accumulated depreciation up to the period under examination. The period depreciation is the difference between the already existing depreciation and the total depreciation allowed. With subsequent acquisitions, the system automatically catches up depreciation from previous years in a lump sum.

 

Stated Percentage Rate

In contrast to a total percentage rate, here you specify the percentage rate for each fiscal year. The system uses this percentage rate for calculating depreciation for each period. For example, you can depreciate 3.5% in each of the first 12 years, then 2% a year for 20 years and 1% per year for the remaining 18 years. The total of the percentage rates over the useful life is always 100%, so that complete depreciation is reached by the end of the useful life.

 

Percentage Rate from Remaining Life + Changeover Date - Depreciation Start Date

This method is used as a changeover method (in the next phase in the depreciation key) following depreciation within the tax concession period of an investment support measure. The net book value of the asset will be depreciated over the total useful life when the tax concession period ends (that is, the actual duration of depreciation encompasses the tax concession period plus the total useful life that is entered).

 

Mean Value from Several Areas

When defining depreciation areas, you can establish dependencies between them by specifying a mathematical formula. This method allows you to calculate depreciation in one area based on the depreciation in another area using this mathematical formula. Using this method you can, for example, calculate the mean value of straight-line depreciation and declining-balance depreciation.

 

Unit-of-Production Depreciation

Unit-of-production depreciation is based on the output-related use of the asset. When you specify a total expected output or a total expected number of units, and the exact output per period or exact unit of production output figure per period, the system determines the resulting depreciation for each period. You enter the output or number of units at the level of the depreciation key.

 

Depreciation Over Remaining Units of Production

In the same way as with the unit-of-production method of depreciation, the amount of depreciation here is dependent on output. In contrast to the unit-of-production method of depreciation, the system uses the remaining units of production and not the total units of production to determine the periodic depreciation. Depreciating using the remaining units of production ensures that, for post-capitalization, the book value reaches zero when the total output or the total units of production is reached.

 

Sum-of-the-Years-Digits Method

An arithmetic sequence is set up based on the total useful life. The depreciation percentage rate is proportional to the remaining useful life.

 

Depreciation According to the Present Value of Lease Installments

This depreciation calculation method is designed for leased assets that have been capitalized using the capital lease procedure. The depreciation amounts correspond here to the present value of the periodic lease installments. The interest is determined as the difference between the lease installment and the present value.

 

Your Own Depreciation Calculation Method

You can program your own depreciation calculation methods using the BAdI method FAA_EE_CUSTOMER (Set_percent_amount). For more information, see the documentation of this customer enhancement (transaction SE18.)