ORACLE APPLICATIONS WHITE PAPERDepreciation Product Design and Architecture doc ii Oracle/Client Confidential .For internal use only .Contributors Name Nancy A. Fixed Assets Support. Technical Analyst. Lanning Position Sr. Orlando Change Record A u t h o r V e r s i o n Change Reference White paper Depreciation. ............................................................................................................................................................ 1 Background............................................doc iii Oracle/Client Confidential ........................................................... 6 BEHIND THE SCENES ................................................. 9 MASS DEPRECIATION ADJUSTMENTS........................................................................................................................................................................... 5 Divide Depreciation Flag......................................................................................................................................................................................................................... 1 Objective................................................................................................................................................... 10 UNPLANNED DEPRECIATION ....................... 5 Date placed in service............. 4 Depreciation Methods .................................................................................................................................................................................................................................................................................................................................................................................................................................. 11 DEPRECIATION PROJECTION ............................................................................... 3 Prorate Calendar ................................................................................................For internal use only ................................................. 1 THE BIG PICTURE........................... 3 Depreciate when placed in service flag ....................... 4 Depreciate Flag .............................................Contents INTRODUCTION .................. 5 Submitting Depreciation........... 12 WHAT-IF ANALYSIS .................................................... 3 Prorate Conventions .......................................................................................................................................... 3 Depreciation Calendar........................................................................................................................................................................................................................................................................ 13 INFORMATION SOURCES ....................................................................................... 1 Scope ...................................................................................................................................................................................... 8 RESERVE ADJUSTMENTS .................................................................................................................... 14 White paper Depreciation.................................. 2 HOW DOES DEPRECIATION WORK?................................................................................ These are all correct. Background The dictionary gives us 3 definitions of Depreciation: 1. It will briefly touch on how to make adjustments and some depreciation tools that will help in running the program. The Internal Revenue Service (IRS) determines the lives that apply to an asset category. White paper Depreciation. as because of age. Scope This paper will cover the functional and technical side of Depreciation. An overview on how depreciation is calculated will be explained with a behind the scenes look of what really happens. but what it basically boils down to is the process of allocating the cost of an asset over the life of that asset. or market conditions. It will describe how your setup affects depreciation. 2.Introduction Objective To provide an overview of the Depreciation Process in Fixed Assets with the hopes of giving the reader a well rounded understanding of depreciation. 3. Reduction in the purchasing value of money.For internal use only 1 . In the United States. Accounting. An allowance made for a loss in value of property. wear. A decrease or loss in value.doc Introduction Oracle/Client Confidential . Therefore. White paper Depreciation. Accounts Payable (AP) and indirectly from Purchasing (PO). it is then considered to be a true asset.doc The Big Picture 2 Oracle/Client Confidential . GL_JE_HEADERS. The Create Journal Entries program creates the journals for General Ledger (GL) and inserts that data directly into the GL tables.e. GL_JE_BATCHES.For internal use only .The Big Picture Data can come into Oracle Assets via the FA_MASS_ADDITIONS table from the following sources: external sources (i. When Depreciation has ran successfully and the period has closed. the unposted journals can be viewed immediately in GL. If the Create Journals program was successful. no journal import from within GL is necessary. you can then submit the Create Journal Entries program (FAPOST). Project Accounting (PA). it can be depreciated. legacy systems). and GL_JE_LINES. Once the data is posted in Oracle Assets. If an asset is setup as a capitalized asset. You can use one calendar for multiple depreciation books and as both the depreciation and prorate calendar for a book. Navigation: SetupàAsset SystemàCalendars SetupàAsset SystemàBook Controls Prorate Calendar The prorate calendar determines the number of prorate periods in your fiscal year. you do not define the adjusting period in your FA calendar.doc How does Depreciation Work? 3 Oracle/Client Confidential . you specify the prorate calendar for each book on the Book Controls form.For internal use only . If you are using an adjusting period in your GL calendar. Navigation: SetupàAsset SystemàCalendars SetupàAsset SystemàBook Controls Prorate Conventions The prorate convention determines how much depreciation to take in the first and last year of an asset's life based on when you place the asset in White paper Depreciation. The depreciation program uses the prorate calendar to determine prorate period.How does Depreciation Work? When initially implementing Fixed Assets. Here are just a few of these items. After setting up the prorate calendar. Note: The period names in your depreciation calendar must match the period names in your GL calendar. many of the steps that you take in the setup directly impacts depreciation. which is used to determine the annual depreciation amount. Depreciation Calendar The depreciation calendar determines the number of accounting periods in a fiscal year. White paper Depreciation. It uses the asset's cost or NBV. This basic rate plus the adjusted rate make up the adjusted rate. See the white paper . After setting up the prorate convention. salvage value. date placed in service. Asset workbench àFind/Select Asset àRetirementsàEnter book name and tab down. Depreciate when placed in service flag Designates whether to start taking depreciation in the accounting period that corresponds to the date placed in service or to start taking depreciation in the accounting period that corresponds to the prorate date.doc How does Depreciation Work? 4 Oracle/Client Confidential . The prorate convention. prorate convention. Navigation: Setting up prorate convention SetupàAsset SystemàProrate Conventions Assigning prorate and retirement conventions to assets Asset workbench àFind/Select Asset àBooks àEnter book name and tab down. If you retire an asset before it is fully reserved. which is used as the fixed rate. the retirement convention and the depreciation method work together to determine the depreciation for the first and last year of an asset's life. it will calculate depreciation based on a fixed rate using the cost or the NBV. If the asset uses a flat rate method. The prorate calendar and convention must be setup before adding the assets. Your tax department chooses the prorate convention. depreciation method and life to calculate depreciation.service. you specify the prorate convention for each asset on the Books form and the retirement convention on the Retirements form in Asset Workbench. the retirement convention determines how much depreciation to take in the period of retirement. located on MetaLink.The Wonderful World of Prorate Conventions.For internal use only . Navigation: SetupàAsset SystemàProrate Conventions Depreciation Methods A life based method or calculated method will spread the depreciation out over the fixed life of the asset. for more details. In Release 11I. formula based depreciation is available. Navigation: White paper Depreciation. you specify your calculation basis. Navigation: Asset workbench àFind/Select Asset àBooks Date placed in service The calendar date when you start using an asset. The value of Evenly divides depreciation evenly for each period and the value By Days divides it proportionally based on the number of days in each period. Units of Production depreciation method bases depreciation only on how much you use that asset.Table based methods use the prorate period and the rate tables. this is cost-accumulated depreciation (reserve). Navigation: SetupàDepreciationàMethods Depreciate Flag Designates whether or not to depreciate an asset. For NBV based depreciation methods. It divides the production for the period by the capacity and multiplies that value by the recoverable cost to calculate the expense for the period.For internal use only . When defining your methods. For costbased depreciation methods. this is cost-salvage value.doc How does Depreciation Work? 5 Oracle/Client Confidential . Navigation: Asset workbench àFind/Select Asset àBooks Divide Depreciation Flag The method for dividing the annual depreciation amount over the periods in you fiscal year for this book. SetupàAsset SystemàBook Controls The depreciation program uses the depreciation rate. it will use the current year depreciation-year to date depreciation. the calculated depreciation amount could be limited by the depreciation-ceiling amount. this could be limited by a cost ceiling or an expense ceiling. Then the current period's depreciation is calculated. an account code combination is needed. This is determined by the fraction of the asset unit that is assigned to each depreciation expense account.7 and 11: At the end of your accounting period. it will use the depreciation calendar and the current year depreciation. In tax books. Navigation: Depreciation à Run Enter the book name and the current open period will default in. which includes the following programs: • Generate Accounts .FAGDA .generates 16 possible account combinations for each new asset added to your system. White paper Depreciation. • For other periods. your depreciable basis (calculation basis) and the prorate calendar to calculate the current year depreciation.(Release 11) . it will use recoverable costaccumulated depreciation. depreciation start date and current year depreciation. Accumulated depreciation (reserve) and year to date (YTD) depreciation is also updated. It then allocates that periodic expense to the assignments of the asset. this could be limited by a cost ceiling. it will use the depreciation calendar.For internal use only .doc How does Depreciation Work? 6 Oracle/Client Confidential . prorate calendar. Submitting Depreciation Release 10. • For the last period of the fiscal year. you will submit the depreciation program for each of your books. This program was a new performance enhancement in release 11 so that workflow does not have to be called each time. • For the last period of the asset's life. It populates the FA_DISTRIBUTION_ACCOUNTS table. • For the first period of the asset's life. In tax books. This submits a request set. If an asset has a depreciation ceiling associated with it. and click on Find.Calculates the gains and losses for pending retirements and reinstatements and performs catch up depreciation for retirements and reinstatements. Navigation: Signon as System Administrator ProfileàSystemàIn profile box.• Calculate Gains and Losses .doc How does Depreciation Work? 7 Oracle/Client Confidential . run the Calculate Gains and Losses and the Generate Accounts programs periodically throughout the period. you can check the close period box and rerun Depreciation to close the period Tip on Running Depreciation: To speed up performance of your depreciation run.FARET . White paper Depreciation. the program will fail at that point and rollback any depreciation that was committed.Calculates depreciation expense and adjustments for the period and closes the period. it will check to see if the next fiscal year. • Depreciation . it will process all the assets and display all of the errored assets in the logfile. post transactions. you have the option to rollback/"undo" depreciation which will allow you to add assets. Release 11i: In Release 11i. prorate and depreciation calendars are defined and if not. Deprn Single is set to Yes. The close period option is determined by a checkbox on the submit depreciation form. Accumulated depreciation and year to date depreciation is updated. etc. the run depreciation and close periods have been broken out to separate processes. it will define them for you. enter FA%. If depreciation is being run for the last period of the fiscal year.For internal use only . resubmit depreciation and only the corrected assets will process. If the profile option. When you are ready to close the period. If you are not satisfied with the depreciation figures or missed some transactions in the period. If depreciation encounters an error.FADEPR . • Journal Entry Reserve Ledger report – FAS400 – Shows how much depreciation expense was charged to a depreciation expense account for any accounting period. This way you can fix all of your errors in one pass. adjustments. Tables that are updated when running depreciation: FA_ADJUSTMENTS . and a new row is inserted for the next period FA_BOOK_CONTROLS .A 'D' row for each distribution line is inserted FA_DEPRN_PERIODS . FA_DEPRN_SUMMARY . the cost journal entries program and FADDEP. FADCJE is called at the beginning of the depreciation program. After it completes.for each distribution line. current_fiscal_year White paper Depreciation. deprn_request_id. It processes all newly added assets and clears their cost in the FA_ADJUSTMENTS table.A 'DEPRN' (D) row is inserted to reflect the current month's depreciation expense. deprn_status.Updates deprn_status. the depreciation module.doc Behind the Scenes 8 Oracle/Client Confidential . last_period_counter. there will be cost and cost clearing rows for the addition.Updating the current period’s row with a PERIOD_CLOSE_DATE closes the current period. and a depreciation expense row for any catch up depreciation. FADDEP calculates depreciation expense for each asset and allocates it to each of the asset's distributions.Behind the Scenes The two major functions in the FADEPR program are FADCJE. FADDEP is called. year to date depreciation expense.For internal use only . and total depreciation reserve (accumulated depreciation) FA_DEPRN_DETAIL . last_deprn_run_date. Navigation: TaxèTax WorkbenchèFind/select assetèReserve Adjustments White paper Depreciation.Reserve Adjustments In your tax books.doc Reserve Adjustments 9 Oracle/Client Confidential . you can adjust your reserve (accumulated depreciation) for an asset in its prior fiscal years.For internal use only . The reserve adjustment will adjust depreciation for the year and all subsequent years. doc Mass Depreciation Adjustments 10 Oracle/Client Confidential .Mass Depreciation Adjustments Mass Depreciation Adjustments allows you to adjust the depreciation expense taken for all the assets in a tax book. Navigation: TaxèMass Depreciation Adjustments White paper Depreciation.For internal use only . now allows you to enter unplanned depreciation for flat methods. You can enter unplanned depreciation by asset and by book for any current period during the life of an asset in either your tax or your Corporate book.For internal use only . unit of production method as well as Straightline. Navigation: Asset workbenchèFind/select assetèBooksèEnter book and tab downè click on unplanned depreciation button White paper Depreciation. Unplanned depreciation updates the year to date.7 and 11. This restriction has been lifted in release 11i. Release 11I. you cannot enter unplanned depreciation for an asset in the period of addition.7 and 11. in release 10. you were only allowed to enter unplanned depreciation for assets that used the Straightline depreciation method. life to date and net book value of an asset.Unplanned Depreciation Unplanned depreciation is a feature in Fixed Assets to handle unusual accounting situations in which you need to adjust Net Book Value and reserve for an asset without affecting cost. In release 10.doc Unplanned Depreciation 11 Oracle/Client Confidential . Also. doc Depreciation Projection 12 Oracle/Client Confidential . Keep in mind. You can project depreciation for any number of periods across any of your depreciation books. whatever period you are projecting for. Navigation: DepreciationèProjections White paper Depreciation.For internal use only .Depreciation Projection Oracle Assets provides you with a depreciation projection program and report that will estimate actual depreciation expense. must be defined in your calendar. Navigation: DepreciationèWhat-If Analysis White paper Depreciation.What-If Analysis (available in release 11 and forward) What-If depreciation analysis allows you to forecast depreciation for a group of assets in different scenarios without changing your data.doc What-If Analysis 13 Oracle/Client Confidential .For internal use only . You can enter your different combinations of parameters in Oracle Assets or in Report Exchange (ADI). The report itself can only be ran in Report Exchange. Transaction Approval by Brad Ridgway White Paper .Depreciation in Oracle Assets by Halim Hafid Brown Bag Presentation .doc Information Sources 14 Oracle/Client Confidential . Release 11 • Oracle Assets Release 11I.The Wonderful World of Prorate Conventions by Eileen Wexler • Oracle Assets Reference Manual.Information Sources Information from this paper came from the following sources: • • • • Brown Bag Presentation .Adjusting Depreciation by Steve Breland White Paper .For internal use only . Release 10 • Oracle Assets Users Guide. New Features White paper Depreciation.