Fixed Assets Module (Depreciation)

 ℹ️Fixed Asset Module needs to be purchased before you can depreciate Items!

 For more information on the Fixed Assets modules, see our article Fixed Assets.

With the Fixed Assets module, you can define up to five depreciation books for customized valuations. Each inventory item can have different depreciation parameters, such as method, years, salvage value, and extra depreciation. The Fixed Assets feature can handle Section 179 and other forms of accelerated depreciation and compute depreciation for serialized items and multiple purchase lot bulk items. There are over 20 different standard depreciation methods to choose from with this feature. All General Ledger entries account for both the depreciation accumulation and the recapture on the disposition of the asset. Multiple reports are available for the depreciation accrued as well as the current book value of each piece of equipment.

Topics in this article include

• What's Depreciation?

• What is Capitalization?

• How is Depreciation Calculated?

• Setting Up Your Depreciation on a New Item

  • Asset tab Setup

  • Purchase tab Setup

• Configuration Setup

• Reports

• Disabling Depreciation

What's Depreciation?

Depreciation decreases an item's value over time, allowing you to expense your taxes for the item over time rather than all at once. It’s a way of keeping inventory values as accurate as possible by calculating each item vs. each purchase line. Depreciation is calculated on the last day of each month, and only the first depreciation schedule/book will be posted to the General Ledger.

What's Capitalization?

Capitalization of an item means you are going to depreciate it; Non-Capitalization means the item is not going to be depreciated. Capitalization is based on the purchase amount of the item, whether it is being treated as an asset or not. If capitalized, when the item is sold, the depreciation value is accounted for in the accrued depreciation account within your General Ledger.

How is depreciation calculated?

1. Home location (Standard) - a location that purchases the item has a monthly entry made for the store. This is available for Expert and Elite.
   
   
2. Prorate by Store - Elite Only. Each store gets depreciation entries based on the # of days it was in that location. This feature is an add-on and requires a license. It is Elite only. 
   
   
3. Transfer Serialized Rental inv. value Checkbox - When a serialized item is transferred, the home and current locations are updated. At the end of the month, the entry will be created in the store that owns the item. You can find this checkbox in the Parameters > Accounting tab.

Setting up your Depreciation on a New Item

Depreciation will need to be set for each serialized item.

⚠️Important things to know before getting started!

• In order for items to calculate depreciation, they must have a purchase date and price (Purchase tab of an item record).
• Depreciation must be set for each serialized item. You can set up depreciation on the header record for reference only; it will not carry over to its serialized items.
• If you are licensed for the Database Management Module, you can update inventory in mass. 

Asset Tab Setup

1. Open the Item file. Follow the below paths for your product.
   • Expert - From Program Menu > File Maintenance > Item File > Asset Tab
   • Elite - Gear icon > Under Core Options, select File Maintenance > Item File > Asset Tab
       
2. Check the Capitalized box. You need to check it to capture depreciation. Then select the Depreciation button. Please note that marking the item as being capitalized here allows it to be part of your General Ledger entries at the end of the month.
   
   
   
3.  Select a depreciation method from the drop-down menu. You can set up five depreciation schedules for each item record. Please note that only the first schedule will be part of the General Ledger entry. 
   
     
4. Fill out the remaining fields:
   
   

   Years	Enter the amount of years the item can depreciate.
   Salvage Value	Enter the lowest value the item will depreciate to. If it’s depreciating to $0, leave it at 0. Any number greater than 1.00 will be taken at face value. Anything below 1.00 will be calculated as a percentage against the last purchase price to produce a salvage value.
   Additional Depreciation	This category holds extra depreciation taken outside of the normal depreciation schedule, i.e., accelerated depreciation (Section 179).
   Equipment GL Accounts	This field is not required. By default, POR will use the Equipment (Default) under the Asset account. If needed, you can enter an account for the Rental Asset for a specific item or grouping of items. Equipment Inventory Account outside of the general Equipment Asset Account.
   Accumulated Depreciation acct	If the Depreciation account is broken out into more than one account, it is outside of the general depreciation account.

      
5. Press OK to save.
    
6. Go to the Purchase tab and ensure there is a purchase line with a date and price. This information is needed for depreciation calculations. If there isn't a purchase line, add on by right-clicking anywhere in the chart. If you cannot add a purchase line, contact your Point of Rental administrator. 
   
   
7. When you're ready, press OK to save the item record.

Other Options in the Depreciation Window

Purchase Tab Setup 

1. The Purchase tab lists every purchase made for this item. It shows the date, vendor, Purchase Order number, quantity purchased, quantity sold, extra charges, and purchase price. Double-clicking on the date or price will reveal other information about the purchase, such as a serial number. The vendor's record will be displayed if you click on the vendor's name.
   
   
   
2. If you have the Purchase Order module, you DO NOT have to follow the following steps. 

   1.  Right-click on the purchase line. It will allow you to view, add, or improve the purchased item.
         

      •   View Purchase Details – Allows setting the depreciation base on each purchase line. You will be able to set the date, quantity purchased, quantity sold, each price, Depreciation method, years to depreciate, Salvage Value, Additional Depreciation, Current Month  Deprecation, Total Depreciation, and Book Value.
          
      • Improvement – When you want to add more value to the item and depreciate the expense.
        
        
      • Add Purchase Line – Will add another purchase line underneath the purchase tab.
          

   2. Please note that depreciation and purchase history cannot be changed on the header item.

       

Configuration Setup

1. Open Parameters and then go to the Accounting tab. Follow the below path for your product. 
   • Expert - From Program Menu> System Configurations> Parameters> Accounting Tab
   • Elite - Gear icon > Under Core Options, App Configurations > System Configurations > Parameters> Accounting Tab
      
2.  Once here, you can enable features Capitalize Extra Charges, Include Extra Charges in Inventory, Transfer Serialized Rental Inv. Value and Depletion Percentage.
   
   

   Capitalize Extra Charges	This parameter sets whether Extra Charges within an item record are capitalized with the purchase price. If you use the Purchase Order module, the shipping charges, tax, and miscellaneous charges are automatically entered into the item’s Extra Charges field. If you are not using the Purchase Order module, you would have to manually add amounts to the Extra Charges field. If you capitalize on extra charges, then shipping, taxes, and miscellaneous charges would be charged to your asset account and not an expense.
   Included Extra Charges	This parameter sets whether Extra Charges within a sales item are included in the inventory value. If you use the Purchase Order module, the shipping charges, tax, and miscellaneous charges are automatically entered in the item’s Extra Charges field. If you are not using the Purchase Order module, you would have to manually add amounts to the Extra Charges field. If you include extra charges, the shipping, taxes, and miscellaneous charges would be charged to your asset account and not an expense.
   Transfer Serialized Rental inv. value checkbox	The home and current locations are updated when a serialized item is transferred. At the end of the month, the entry will be created in the store that owns the item.
   Depreciation %	This parameter sets the depletion percentage used for depreciation. It is only used if the Depletion method is chosen for depreciated items. Please note that this method cannot be used on Item Improvements.

Reports

Below are the available reports for depreciation.

• Improvement: This feature adds more value to the item and depreciates the expense. This can be done through an IRO if the total repair cost is more than $1,000.01 (Tools> Add as Improvement) or by right-clicking anywhere below the purchase details within the Purchases tab of the serialized item and then selecting Add Improvement.

Disabling Depreciation

Users who calculate depreciation outside of Elite can disable the functionality within the program. This is a company-wide setting. To disable, ensure that the 'Disable Depreciation' security option is turned on under 'Configuration' security so that it can be viewed/edited. Once turned on, any user attempting to access the depreciation section of the item file or Section 179 depreciation in database management tools will be warned that the depreciation has been disabled, and no action will be taken. The total depreciation, current value, and GL number for depreciation can be updated via the API with the externally calculated depreciation.