❖ A depreciation method must be assigned to each asset so that NetSuite can accurately calculate the depreciation.
❖ Common depreciation methods are automatically configured. But we can also create custom methods.
❖ When we create assets manually, we can select the specific depreciation method. However, if assets are generated, then the depreciation is automatically pulled from the selected asset type.
❖ Creation of Depreciation method:
➢ Navigate to Fixed Assets -> Set up -> Depreciation methods -> New
➢ Enter a name for the depreciation method
➢ Enter a description for easy reference
➢ Enter depreciation period – monthly, annual, etc.
➢ If the depreciation method is for a limited period, select the end period number. This is the maximum number of periods depreciation methods can be used.
➢ If the depreciation method only covers a limited period, select the next depreciation method. This method will apply itself to the asset after the initial depreciation method ends.
➢ Enter the depreciation formula.
➢ Final period convention field is relevant to accruals only. Select from the following options:
Fully Depreciate – The remaining balance will be included in the final period calculation so that the remaining value becomes zero.
Retain Balance – The final period will be calculated using the relevant accrual convention without including any remaining balance. The remaining value will not become zero.
➢ Click Save.
❖ Asset depreciation
➢ Navigate to Fixed Assets -> Transactions -> Asset depreciation
➢ Select one or more applicable asset types
➢ Select one or more subsidiaries
➢ Check the ‘include children’ box to include child subsidiaries of selected subsidiaries
➢ The depreciation period defaults to the current date but we can select a different date if required.
➢ Enter the depreciation reference, which will be the base reference on all generated journals. If this field is left blank, then the system generates a generic default reference.
➢ Click Depreciate Assets.
➢ The FAM Process Status page opens. Click refresh to update the status of depreciation.
➢ When the status shows complete, click details to review the depreciation process.
➢ If the depreciation has any errors, the status page will show errors with the count. Click on errors to view completed depreciation with errors.
NetSuite Preconfigured depreciation methods:
▪ 150DB
▪ 200DB
▪ 250DB
▪ 25% Reducing Balance
▪ 4–4–5 Calendar Depreciation
▪ Asset Usage
▪ Capital Allowance Year 1
▪ Capital Allowance Year N
▪ Fixed Declining
▪ Straight Line
▪ Straight Line Remaining
▪ Sum of Years/Straight Line
▪ Sum of Years Digits
▪ Tax Diminishing Method
▪ Zero Depreciation
➢ Asset Usage/Asset activity depreciation – Usage-based depreciation methods are not based on time, but on a level of activity. This could be miles driven for a vehicle, or a cycle count for a machine. When the asset
is acquired, its life is estimated in terms of this level of activity. For each period, the depreciation expense is then calculated by multiplying the rate by the actual activity level.
Calculating Units-of-Activity Depletion:
o Depreciable Cost / Units in Useful Life = Per Unit Depreciation
o Per-Unit Depreciation x Units During Period = Period Depreciation Expense
➢ Fixed Declining/ declining balance depreciation – Depreciation methods that provide for a higher depreciation charge in the first year of an asset’s life and gradually decreasing charges in subsequent years are
called accelerated depreciation methods. This may be a more realistic reflection of an asset’s actual expected benefit from the use of the asset. Many assets are most useful when they are new. One popular accelerated method is the fixed declining method.
Book Value = Original Cost – Accumulated Depreciation
The asset is depreciated until the Book Value equals Salvage Value, or Scrap Value.
➢ Straight Line depreciation – the company estimates the salvage value of the asset at the end of its useful life (the period during which it is used to generate revenues) and will expense a portion of the original cost in equal increments over that period. The residual value, also known as scrap value, is an estimate of the value of the asset at the time it will
be sold or disposed of. The residual value may be zero.
Annual Depreciation Expense = (Cost of Fixed Asset – Scrap Value) / Life span
➢ Sum of Years’ Digits depreciation – depreciation method that results in a more accelerated write-off than straight-line, but less than the declining-balance method. Under this method, annual depreciation is determined by multiplying the depreciable cost by a schedule of fractions.
Depreciable Cost = Original Cost – Salvage Value
Book Value = Original Cost – Accumulated Depreciation
➢ Straight Line Remaining – This method is similar to the standard Straight-Line method but will depreciate the asset from the value at the start of the method rather than the original cost. This method would be typically used as a linked method following another method.
➢ Sum of Years/Straight Line – This method depreciates the asset using the Sum of Years’ Digits method for the first year before switching to using Straight Line depreciation for the rest of the depreciation lifetime.
➢ 150DB and 200DB – These are standard Modified Accelerated Cost Recovery System (MACRS) methods as defined for US Tax purposes. These two methods consist of two calculations where the highest value is selected. The net effect is that for the first part of the asset life it will depreciate faster. Partway through the asset life, approximately a
third in the case of 150DB, the second method will take over, and the depreciation will go from a curve to finish as a straight-line method.
150DB method formula: ((NB-RV)(1.5/AL))~((NB-RV)/(AL-CP+1)) 200DB is the same basic formula but will depreciate faster before switching to straight-line: ((NB-RV)(2/AL))~((NB-RV)/(AL-CP+1))
➢ 4–4–5 Calendar Depreciation – The 4-4-5 Calendar Depreciation method computes depreciation on a daily basis. When you enable the Use Accounting Period Dates for Depreciation preference in the Fixed Assets Setup page, the generated depreciation history record, and the journal entry will use the end date of the base period.
Formula: 12((CC-RV)/AL)(DP/FY)
DP/FY is a pro-rated calculation that is based on the number of days in a period. In a 4–4–5 calendar, this is equivalent to 28 days for 4 weeks, 35 days for 5 weeks, and 36 days for the last period of the year.
Note:
1. make sure the asset’s depreciation rule is not set to pro-rata [Using the pro-rata depreciation rule, the system will compute the depreciation amount based on a 30–day month. In a 4–4–5 calendar, the difference in the estimated days and the actual length of the period alters the depreciation amount.]
2. When your accounting period is set to Calendar Months, using the 4-4-5 Calendar Depreciation method will compute the monthly depreciation based on the number of days for a specific month.
3. The 4–4–5 calendar depreciation does not support irregular accounting periods
Operators used in the Depreciation formula:
1) ^ (to the power of, e.g., 5^2 = 5 squared)
2) ( ) * / +
3) any number with decimals (e.g., 12345.67) [Note: when creating a custom depreciation formula, we cannot use commas for decimal places.
4) IF condition THEN value if true ELSE value if true ENDIF
a. comparison operators (<=, <, ==, !=, >, >=)
5) ~ (maximum of two values, e.g., 2~5 = 5)
6) Original Asset Cost (OC) – The original cost of the asset, usually the purchase price.
7) Current Asset Cost (CC) – The current cost of the asset. This will typically be the same as the original cost, but it provides an additional cost value to track and use where the cost may vary from the original cost. Write-downs affect this value.
8) Net Book Value (NB) – The current depreciated value of the asset.
9) Residual Value (RV) – The minimum value the asset will be reduced to. This is usually zero unless a residual value has been configured against the asset.
10) Asset Lifetime (AL) – The number of periods an asset will be depreciated for (asset effective life for tax).
11) Current Period or Age (CP) – The current age of the asset.
12) Total Depreciation Amount (TD) – The total amount of depreciation applied to the asset.
13) Current Usage (CU) – The current recorded usage of the asset.
14) Lifetime Usage (LU) – The total usage lifetime configured against the asset.
15) Last Depreciation Amount (LD) – The last depreciation amount.
16) Days held in the current period (DH) – The number of days between the asset acquisition date or start date of the current period (whichever comes later) and the end of life (disposal) date or the end of the current period (whichever comes earlier).
17) Prior year net book value (PB) – The closing net book value at the end of the prior financial year as stored on the asset record. The start and end of the year for the method are determined by the Financial Year Start field. The Prior Year NBV is updated when the month being depreciated is the same as the month set as the Financial Year Start. This captures the NBV value as it was for the financial year that ended.
18) Depreciation Period (DP) — The number of days in a period.
19) Fiscal Year (FY) — The number of days in a fiscal year.
20) R1…Rn — A placeholder for values used in the depreciation rate table.
21) ROUND — If the asset’s currency is Japanese Yen, this function rounds a value based on the rounding preference specified on the FAM System Setup page. Otherwise, the ROUND function will round a value based on the asset’s currency precision.