Asset depreciation...

Fixed asset depreciation: Fixed assets such as plant and machinery, gradually lose their value, and need to be replaced when they are no longer productive. Replacing old assets with new ones is often very costly for a business organization. Fixed asset depreciation is a way funding the purchase of new assets, and for representing the real value of assets given in the balance sheet. In accounting, fixed asset depreciation is treated as an expense in the profit and loss account. As there are no cash transactions involved, the organization actually saves the amount charged as depreciation, which can later be transferred to a reserve account. These reserves can be utilized to buy new assets. The amount of depreciation can be calculated by any of the accounting methods, depending on the type of asset. The most commonly used is referred to as the ‘straight-line method’, in which the value of the asset is reduced by the same amount every year. Subtracting the residual value of the asset from its current value, and dividing the resulting figure by the number of productive years of the asset calculates the amount charged every year. The other commonly used one is the reducing balance method, in which a high annual depreciation is charged in the initial years of the asset. The depreciation amount keeps reducing as the asset nears the end of its productive life.

Asset depreciation software: Business organizations usually have innumerable assets, making it difficult to manually calculate and charge depreciation. Therefore, companies prefer using fixed asset depreciation software, which calculates depreciation according to the existing depreciation rules and regulations. By using the asset depreciation software system, companies can create unlimited numbers of fixed asset records. Various kinds of assets can be classified according to the type of asset, location and G/L account number. Asset depreciation software systems such as Oracle are normally compatible with other types of accounting software that are used by organizations. Hence, once a record is created, it is automatically transferred to other books of accounts, minimizing the task of the accountant. The software also has a number of additional features such as a notepad for each asset, which can be used for storing valuable information such as model numbers, vendor contact information, maintenance records and more. Stored asset records can easily be accessed, as the software allows users to browse or search, by using various search criteria, such as asset ID, date, group, AMT (alternative minimum tax) type, and class.

Asset depreciation range: Asset depreciation range (ADR) is the period during which the depreciation amount can be charged on the asset. The asset depreciation range varies depending on the type or class of assets. For example, some assets may have an ADR of 20 years, whereas others may have an ADR of 5 to 10 years. The ADR system was put in place, when the IRS realized that some companies were charging high amounts of depreciation, to show low profits or even loss in their account books, to avoid taxes. Now, companies have to charge depreciation according to the range stipulated in the ADR.

Asset depreciation schedule: Asset depreciation schedule is used for recording depreciation entries related to an asset. The asset depreciation schedule displays the type of method used, the number of years, and the percentage of depreciation charged per year. Accountants can know the type of asset, the type of method, the total amount depreciated, and the existing value of the asset just by looking at the asset depreciation schedule. This makes the task of the accountant much easier.