Examples of system straight line depreciation calculations

For accounting purposes depreciation represents the extent to which the economic value of an asset to the organisation has been consumed by the organisation. Straight line depreciation allocates the amount to be depreciated in equal amounts over the life of the asset. For example, a computer is purchased today for £1500 and it is estimated to have an economic useful life of three years. Today the depreciation is zero (the computer has not yet been used). However in six months time the depreciation is £250 (1/6 of £1500) and at the end of the first year the cumulative deprecation is £500 (1/3 of £1500).

How the system calculates straight line depreciation

The system computes the depreciation by the taking the Estimated Useful Life entered on the asset record as years and working out the number of days that represents. Then it takes the Cost or Revalued amount less any Estimated Residual Value (also entered on the asset record), divided by the number of days for a daily rate of depreciation. This rate is used to compute the depreciation over any period.

NOTE - If you have entered a residual value for the asset on the asset record then this value is deducted from the NBV in the calculation of depreciation

Examples

Opening balance asset

Opening balance asset - an asset already owned and having been recorded in the asset ledger:
Cost Dep'n NBV
Asset start date 31 Dec 2018 - - -
Opening Balance Information as at 31 Dec 2019 6,000.00 1,200.00 4,800.00
Straight Line set at 5 Years (1825 days) to 30 Dec 2023 - - -
Days remaining from 31 Dec 2019 to 30 Dec 2023 1460 - - -
Days from opening balance date to (say) 31 Oct 2020 305 - - -
Depreciation calculated for period 1 Jan to 31 Oct 4,800*305/1460 - 1,002.74 -
Revised asset Value (NBV) at 31 Oct 2020 - - 3,797.26

The NBV value above at 31 Oct 2020 is calculated as (6,000 less cumulative depreciation of (1,200.00 + 1,002.74) 2,002.74.

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New asset

New asset
Cost Dep'n NBV
Asset cost and start date 1 September 2020 10,000.00 - 10,000.00
Straight Line set at 10 Years (3651 days) to 31 Aug 2030 - - -
Days from acquisition date to (say) 31 Oct 2020 60 - - -
Depreciation calculated for period 1 Sept to 31 Oct 10,000*60/3651 - 164.34 -
Revised asset Value (NBV) at 31 Oct 2020 - - 9,835.66

The NBV value above at 31 Oct 2020 is calculated as (10,000 less cumulative depreciation of 164.34 is 9,835.66)

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Revaluation of an asset

Revalue an asset
Cost/Reval. Dep'n NBV
Asset cost (Acquired 1 Jan 2020) and NBV at 30 Sept 2020 100,000.00 3,737.68 96,262.32
Straight Line set at 20 Years (7304 days) to 31 Dec 2039 - - -
Asset revalued to 150,000 on 1 Oct 2020 153,737.68 3,737.68 150,000.00
Days remaining from 30 Sept 2020 to 31 Dec 2039 7031 - - -
Days from revaluation date to (say) 31 Dec 2020 92 - - -
Depreciation calculated for period 1 Oct to 31 Dec 150,000*92/7031 - 1,962.74 -
Revised asset Value (NBV) at 31 Dec 2020 - - 148,037.26

The NBV value above at 31 Dec 2020 is calculated as (153,737.68 less cumulative depreciation of 5,700.42 (3,737.68 + 1,962.74)

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Impairment of an asset

Impair an asset - Example
Cost Dep'n NBV
Asset cost (Acquired 1 Jan 2020) and NBV at 30 Sept 2020 100,000.00 3,737.68 96,262.32
Straight Line set at 20 Years (7304 days) to 31 Dec 2039 - - -
Asset Impaired to 50,000 on 1 Oct 2020 100,000.00 50,000.00 50,000.00
Days remaining from 1 Oct 2020 to 31 Dec 2039 7030 - - -
Days from impairment date to (say) 31 Dec 2020 91 - - -
Depreciation calculated for period 2 Oct to 31 Dec 50,000*91/7030 - 647.23 -
Revised asset Value (NBV) at 31 Dec 2020 - - 49,352.77

The NBV value above at 31 Dec 2020 is calculated as (100,000.00 less cumulative depreciation of 50,647.23 (50,000.00 + 654.23)

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Additions to an existing asset

An addition to an existing asset can be added by using a journal referenced to the relevant asset. Debit the appropriate tangible fixed asset cost account and the credit to asset additions account. Note the payment is also recorded to the asset additions account to balance to zero.

The system calculates a NBV, and therefore depreciation, for each addition starting in the month in which it was added.

Addition to an existing asset - Example
Cost Dep'n NBV
Original asset cost and NBV at 30 Sept 2020 12,0000.00 246.49 11,753.51
Straight Line set at 8 Years (2921 days) to 31 July 2028 - - -
Asset addition on 1 Oct 2020 1,000.00 - 1,000.00
Days remaining from 1 Oct 2020 to 31 July 2028 2860 - - -
Days from Addition date to (say) 31 Oct 2020 31 - - -
Depreciation calculated for period 1 Oct to 31 Oct 2020 on the Original asset 12,000*31/2921 - 127.35 -
Depreciation calculated for period 1 Oct to 31 Oct 2020 on the Addition 1,000*31/2860 - 10.84 -
Total asset depreciation and NBV at 31 October 2020 13,000.00 384.68 12,615.32
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