As a Fixed Asset Accountant, you’ll often work with NetSuite to record assets. One really important part of this process is setting up depreciation rules. These rules determine how assets lose their value over time, which is important for financial reporting.
Administrators should take the lead in setting up the depreciation rules, as this is an important setup in Asset Creation. When they fully grasp the impact of each depreciation rule on the financial statements, it becomes easier to avoid mistakes in recording fixed assets. By doing so, they can ensure the accuracy of the financial records and save time on future corrections
Scenario: Understanding Depreciation Rule Variations
Let’s consider a scenario with the following asset details:
- Asset Type: Equipment
- Asset Original Cost: $500,000
- Asset Current Cost: $500,000
- Residual Value: $0
- Depreciation Method: Straight Line
- Asset Lifetime: 60 months
- Depreciation Period: Monthly
- Purchase Date: January 1, 2025
- Depreciation Start Date: Scenario 1 : January 1, 2025
- Scenario 2 : January 15, 2025
- Revision Rules: Current Period
Depreciation Rules and Their Impact:
Depreciation Rule
First Depreciation Date
Acquisition
January 31, 2025
Disposal
February 28, 2025
Mid-Month
January 31, 2025
Pro-rata
January 31, 2025
Calculation for Scenario 2:
- (Original cost / Asset Lifetime in years) * Number of days asset used / 30 days)
- (500,000 / 5 years) * 16 days / 30 days) = $53,333.33 depreciation for the period
In the above table, we see how the depreciation start date affects the first depreciation date under different rules. When the depreciation start date is within the first half of the month, depreciation begins in the same month as the asset acquisition. If it falls in the second half, depreciation starts the following month.
Mid-Month Rule:
If the depreciation start date is within the second half of the month (e.g., June 28, 2025), depreciation will commence in the subsequent month (July).
Pro-rata Rule:
With the Pro-rata rule, depreciation is calculated based on the number of days the asset was used within the depreciation period, assuming a 30-day month. This rule is particularly relevant when the depreciation start date is not aligned with the beginning of the month.
Conclusion:
Selecting the appropriate depreciation rule is vital for accurate financial reporting. The chosen rule determines when depreciation begins and how it is calculated, directly impacting the asset’s value over time. This guide aims to assist Fixed Asset Accountants in making informed decisions when importing assets and applying depreciation rules in NetSuite.