Fixed Asset Depriciation

ORACLE APPLICATIONS

WHITE PAPER

Depreciation

Product Design and Architecture

White paperDepreciation.doc Oracle/Client Confidential - For internal use only

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Contributors

Name Position

Nancy A. Lanning Sr. Technical Analyst, Fixed Assets Support, Orlando

Change Record

Author

Version

Change Reference

White paperDepreciation.doc Oracle/Client Confidential - For internal use only

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Contents

INTRODUCTION ................................................................................................................................... 1Objective........................................................................................................................................ 1Scope ............................................................................................................................................. 1Background.................................................................................................................................... 1

THE BIG PICTURE................................................................................................................................ 2HOW DOES DEPRECIATION WORK?....................................................................................................... 3

Depreciation Calendar................................................................................................................... 3Prorate Calendar ........................................................................................................................... 3Prorate Conventions ...................................................................................................................... 3Depreciate when placed in service flag .......................................................................................... 4Depreciation Methods .................................................................................................................... 4Depreciate Flag ............................................................................................................................. 5Date placed in service.................................................................................................................... 5Divide Depreciation Flag............................................................................................................... 5Submitting Depreciation................................................................................................................. 6

BEHIND THE SCENES ........................................................................................................................... 8RESERVE ADJUSTMENTS...................................................................................................................... 9MASS DEPRECIATION ADJUSTMENTS.................................................................................................. 10UNPLANNED DEPRECIATION .............................................................................................................. 11DEPRECIATION PROJECTION .............................................................................................................. 12WHAT-IF ANALYSIS .......................................................................................................................... 13INFORMATION SOURCES .................................................................................................................... 14

White paper Introduction 1Depreciation.doc Oracle/Client Confidential - For internal use only

Introduction

Objective

To provide an overview of the Depreciation Process in Fixed Assets withthe hopes of giving the reader a well rounded understanding ofdepreciation.

Scope

This paper will cover the functional and technical side of Depreciation. Itwill describe how your setup affects depreciation. An overview on howdepreciation is calculated will be explained with a behind the scenes look ofwhat really happens. It will briefly touch on how to make adjustments andsome depreciation tools that will help in running the program.

Background

The dictionary gives us 3 definitions of Depreciation:

1. A decrease or loss in value, as because of age, wear, or marketconditions.2. Accounting. An allowance made for a loss in value of property.3. Reduction in the purchasing value of money.

These are all correct, but what it basically boils down to is the process ofallocating the cost of an asset over the life of that asset. In the UnitedStates, The Internal Revenue Service (IRS) determines the lives that applyto an asset category.

White paper The Big PictureDepreciation.doc Oracle/Client Confidential - For internal use only

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The Big Picture

Data can come into Oracle Assets via the FA_MASS_ADDITIONS tablefrom the following sources: external sources (i.e. legacy systems), ProjectAccounting (PA), Accounts Payable (AP) and indirectly from Purchasing(PO). Once the data is posted in Oracle Assets, it is then considered to bea true asset. If an asset is setup as a capitalized asset, it can be depreciated.When Depreciation has ran successfully and the period has closed, you canthen submit the Create Journal Entries program (FAPOST). The CreateJournal Entries program creates the journals for General Ledger (GL) andinserts that data directly into the GL tables, GL_JE_HEADERS,GL_JE_BATCHES, and GL_JE_LINES. Therefore, no journal importfrom within GL is necessary. If the Create Journals program wassuccessful, the unposted journals can be viewed immediately in GL.

White paper How does Depreciation Work?Depreciation.doc Oracle/Client Confidential - For internal use only

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How does Depreciation Work?

When initially implementing Fixed Assets, many of the steps that you takein the setup directly impacts depreciation. Here are just a few of theseitems.

Depreciation Calendar

The depreciation calendar determines the number of accounting periods ina fiscal year. You can use one calendar for multiple depreciation booksand as both the depreciation and prorate calendar for a book.

Note: The period names in your depreciation calendar must match theperiod names in your GL calendar. If you are using an adjusting period inyour GL calendar, you do not define the adjusting period in your FAcalendar.

Navigation:SetupàAsset SystemàCalendarsSetupàAsset SystemàBook Controls

Prorate Calendar

The prorate calendar determines the number of prorate periods in yourfiscal year. The depreciation program uses the prorate calendar todetermine prorate period, which is used to determine the annualdepreciation amount. After setting up the prorate calendar, you specify theprorate calendar for each book on the Book Controls form.

Navigation:SetupàAsset SystemàCalendarsSetupàAsset SystemàBook Controls

Prorate Conventions

The prorate convention determines how much depreciation to take in thefirst and last year of an asset's life based on when you place the asset in


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service. Your tax department chooses the prorate convention. The proratecalendar and convention must be setup before adding the assets. If youretire an asset before it is fully reserved, the retirement conventiondetermines how much depreciation to take in the period of retirement. Theprorate convention, the retirement convention and the depreciation methodwork together to determine the depreciation for the first and last year of anasset's life. After setting up the prorate convention, you specify the prorateconvention for each asset on the Books form and the retirement conventionon the Retirements form in Asset Workbench. See the white paper - TheWonderful World of Prorate Conventions, located on MetaLink, for moredetails.

Navigation:Setting up prorate convention -SetupàAsset SystemàProrate Conventions

Assigning prorate and retirement conventions to assets -Asset workbench àFind/Select Asset àBooks àEnter book name andtab down.

Asset workbench àFind/Select Asset àRetirementsàEnter book nameand tab down.

Depreciate when placed in service flag

Designates whether to start taking depreciation in the accounting periodthat corresponds to the date placed in service or to start takingdepreciation in the accounting period that corresponds to the prorate date.

Navigation:SetupàAsset SystemàProrate Conventions

Depreciation Methods

A life based method or calculated method will spread the depreciation outover the fixed life of the asset. It uses the asset's cost or NBV, salvagevalue, date placed in service, prorate convention, depreciation method andlife to calculate depreciation.

If the asset uses a flat rate method, it will calculate depreciation based on afixed rate using the cost or the NBV. This basic rate plus the adjusted ratemake up the adjusted rate, which is used as the fixed rate.


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Table based methods use the prorate period and the rate tables.

Units of Production depreciation method bases depreciation only on howmuch you use that asset. It divides the production for the period by thecapacity and multiplies that value by the recoverable cost to calculate theexpense for the period.

In Release 11I, formula based depreciation is available.

When defining your methods, you specify your calculation basis. For cost-based depreciation methods, this is cost-salvage value. For NBV baseddepreciation methods, this is cost-accumulated depreciation (reserve).

Navigation:SetupàDepreciationàMethods

Depreciate Flag

Designates whether or not to depreciate an asset.

Navigation:Asset workbench àFind/Select Asset àBooks

Date placed in service

The calendar date when you start using an asset.

Navigation:Asset workbench àFind/Select Asset àBooks

Divide Depreciation Flag

The method for dividing the annual depreciation amount over the periodsin you fiscal year for this book. The value of Evenly divides depreciationevenly for each period and the value By Days divides it proportionallybased on the number of days in each period.

Navigation:


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SetupàAsset SystemàBook Controls

The depreciation program uses the depreciation rate, your depreciable basis(calculation basis) and the prorate calendar to calculate the current yeardepreciation. In tax books, this could be limited by a cost ceiling. Then thecurrent period's depreciation is calculated. In tax books, this could belimited by a cost ceiling or an expense ceiling.

• For the first period of the asset's life, it will use the depreciationcalendar, prorate calendar, depreciation start date and current yeardepreciation.

• For the last period of the asset's life, it will use recoverable cost-accumulated depreciation.

• For the last period of the fiscal year, it will use the current yeardepreciation-year to date depreciation.

• For other periods, it will use the depreciation calendar and the currentyear depreciation.

If an asset has a depreciation ceiling associated with it, the calculateddepreciation amount could be limited by the depreciation-ceiling amount.

It then allocates that periodic expense to the assignments of the asset. Thisis determined by the fraction of the asset unit that is assigned to eachdepreciation expense account. Accumulated depreciation (reserve) andyear to date (YTD) depreciation is also updated.

Submitting Depreciation

Release 10.7 and 11:

At the end of your accounting period, you will submit the depreciationprogram for each of your books.

Navigation: Depreciation à RunEnter the book name and the current open period will default in.

This submits a request set, which includes the following programs:

• Generate Accounts - FAGDA - (Release 11) - generates 16 possibleaccount combinations for each new asset added to your system. Itpopulates the FA_DISTRIBUTION_ACCOUNTS table. This programwas a new performance enhancement in release 11 so that workflow doesnot have to be called each time, an account code combination is needed.


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• Calculate Gains and Losses - FARET - Calculates the gains and lossesfor pending retirements and reinstatements and performs catch updepreciation for retirements and reinstatements.

• Depreciation - FADEPR - Calculates depreciation expense andadjustments for the period and closes the period. Accumulateddepreciation and year to date depreciation is updated. If depreciation isbeing run for the last period of the fiscal year, it will check to see if thenext fiscal year, prorate and depreciation calendars are defined and if not,it will define them for you.

• Journal Entry Reserve Ledger report – FAS400 – Shows how much

depreciation expense was charged to a depreciation expense account forany accounting period.

If depreciation encounters an error, the program will fail at that point androllback any depreciation that was committed.

Release 11i:

In Release 11i, the run depreciation and close periods have been brokenout to separate processes. If the profile option, Deprn Single is set to Yes,it will process all the assets and display all of the errored assets in thelogfile.

Navigation:Signon as System AdministratorProfileàSystemàIn profile box, enter FA%, and click on Find.

This way you can fix all of your errors in one pass, resubmit depreciationand only the corrected assets will process. If you are not satisfied with thedepreciation figures or missed some transactions in the period, you havethe option to rollback/"undo" depreciation which will allow you to addassets, post transactions, adjustments, etc. The close period option isdetermined by a checkbox on the submit depreciation form. When youare ready to close the period, you can check the close period box and re-run Depreciation to close the period

Tip on Running Depreciation: To speed up performance of yourdepreciation run, run the Calculate Gains and Losses and the GenerateAccounts programs periodically throughout the period.

White paper Behind the ScenesDepreciation.doc Oracle/Client Confidential - For internal use only

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Behind the Scenes

The two major functions in the FADEPR program are FADCJE, the cost journalentries program and FADDEP, the depreciation module.

FADCJE is called at the beginning of the depreciation program. It processes allnewly added assets and clears their cost in the FA_ADJUSTMENTS table. Afterit completes, FADDEP is called. FADDEP calculates depreciation expense foreach asset and allocates it to each of the asset's distributions.

Tables that are updated when running depreciation:

FA_ADJUSTMENTS - for each distribution line, there will be cost andcost clearing rows for the addition, and a depreciation expense row for anycatch up depreciation.

FA_DEPRN_SUMMARY - A 'DEPRN' (D) row is inserted to reflect thecurrent month's depreciation expense, year to date depreciation expense,and total depreciation reserve (accumulated depreciation)

FA_DEPRN_DETAIL - A 'D' row for each distribution line is inserted

FA_DEPRN_PERIODS - Updating the current period’s row with aPERIOD_CLOSE_DATE closes the current period, and a new row isinserted for the next period

FA_BOOK_CONTROLS - Updates deprn_status, last_period_counter,last_deprn_run_date, deprn_request_id, deprn_status, current_fiscal_year

White paper Reserve AdjustmentsDepreciation.doc Oracle/Client Confidential - For internal use only

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Reserve Adjustments

In your tax books, you can adjust your reserve (accumulated depreciation) foran asset in its prior fiscal years. The reserve adjustment will adjustdepreciation for the year and all subsequent years.

Navigation:TaxèTax WorkbenchèFind/select assetèReserve Adjustments

White paper Mass Depreciation AdjustmentsDepreciation.doc Oracle/Client Confidential - For internal use only

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Mass Depreciation Adjustments

Mass Depreciation Adjustments allows you to adjust the depreciationexpense taken for all the assets in a tax book.

Navigation:TaxèMass Depreciation Adjustments

White paper Unplanned DepreciationDepreciation.doc Oracle/Client Confidential - For internal use only

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Unplanned Depreciation

Unplanned depreciation is a feature in Fixed Assets to handle unusualaccounting situations in which you need to adjust Net Book Value and reservefor an asset without affecting cost. You can enter unplanned depreciation byasset and by book for any current period during the life of an asset in eitheryour tax or your Corporate book.Unplanned depreciation updates the year to date, life to date and net bookvalue of an asset.In release 10.7 and 11, you cannot enter unplanned depreciation for an asset inthe period of addition. This restriction has been lifted in release 11i.Also, in release 10.7 and 11, you were only allowed to enter unplanneddepreciation for assets that used the Straightline depreciation method. Release11I, now allows you to enter unplanned depreciation for flat methods, unit ofproduction method as well as Straightline.

Navigation:Asset workbenchèFind/select assetèBooksèEnter book and tab downèclick on unplanned depreciation button

White paper Depreciation ProjectionDepreciation.doc Oracle/Client Confidential - For internal use only

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Depreciation Projection

Oracle Assets provides you with a depreciation projection program and reportthat will estimate actual depreciation expense. You can project depreciationfor any number of periods across any of your depreciation books. Keep inmind, whatever period you are projecting for, must be defined in your calendar.

Navigation:DepreciationèProjections

White paper What-If AnalysisDepreciation.doc Oracle/Client Confidential - For internal use only

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What-If Analysis

(available in release 11 and forward)

What-If depreciation analysis allows you to forecast depreciation for a groupof assets in different scenarios without changing your data. You can enteryour different combinations of parameters in Oracle Assets or in ReportExchange (ADI). The report itself can only be ran in Report Exchange.

Navigation:DepreciationèWhat-If Analysis

White paper Information SourcesDepreciation.doc Oracle/Client Confidential - For internal use only

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Information Sources

Information from this paper came from the following sources:

• Brown Bag Presentation - Depreciation in Oracle Assets by Halim Hafid• Brown Bag Presentation - Adjusting Depreciation by Steve Breland• White Paper - Transaction Approval by Brad Ridgway• White Paper - The Wonderful World of Prorate Conventions by Eileen

Wexler• Oracle Assets Reference Manual, Release 10• Oracle Assets Users Guide, Release 11• Oracle Assets Release 11I, New Features

Documents

Fixed Asset Depriciation