AssetSonar makes it easier to track depreciation of your IT Assets. It enables you to manage depreciation across different groups and draft depreciation reports for actionable insights.
Contents
- Getting started
- How is depreciation calculated in AssetSonar?
2.1. Depreciation without a Salvage Value
2.2. Depreciation with a Salvage Value - A note on depreciation in the month of Purchase, Disposal, and Retiring
- Set your own year-ending month
- Depreciation reports and analytics
- Customized views of depreciation data
1. Getting started
Before you start tracking depreciation, you can choose between two depreciation models, i.e. Straight Line method or Declining Balance method. You can even run both methods at the same time if needed. Depreciation can be configured at the group level. To enable IT Asset depreciation, go to Settings → Add Ons → Asset Depreciation and click ‘Enabled’.
Currently, you can see that the Straight Line method has been applied. Apply the second method of calculating depreciation by clicking on the ‘Set up Model 2’ button.
This pops open the following overlay. Here, you can choose the ‘Declining Balance’ method, as illustrated:
If you want to use the Declining Balance method to calculate depreciation, you must select the ‘Active’ checkbox as shown above. You can always revert and edit any of the two depreciation methods to activate or deactivate them, as needed.
Note: For the Declining Balance method, if you switch from Active to Inactive, you will lose any previous data regarding depreciation. Your data will not be recovered even if you switch back the depreciation method to ‘Active’.
Next, go to the Groups module and pick a Group you’d like to set a depreciation rate for. By default, you will see that the depreciation is set to 20% for your preferred method of depreciation calculation. In this example, we have activated both calculation methods, so both are displayed on the Group Details page with a value of 20%.
To edit the depreciation rate for a method, click ‘Edit’, as highlighted below:
AssetSonar sets the depreciation rate to 20% by default. You can change this by using the field below:
Once you’re done editing the rates, simply click ‘Update’ and you’re done.
2. How is depreciation calculated in AssetSonar?
In AssetSonar, depreciation is calculated on a monthly basis. See the following examples to see how it plays out:
2.1. Depreciation without a Salvage Value
2.1.1. Straight-line method
Let’s say, your company buys a laptop for $1000 and sets the depreciation rate to 20%. AssetSonar would calculate depreciation as follows:
Monthly Depreciation
= [Purchase Cost * Depreciation Rate]/12
= [1000 * (20/100)]/12
= 200/12
= $16.666
If the IT Asset was purchased on the 1st of July 2016, and you want to know its depreciated value on the 1st of January, 2018 — a full 18 months after its purchase. The system would calculate this as:
Depreciated Value After X Months
= Purchase Cost — [Monthly Depreciation * X]
= 1000 — [16.666 * 18]
= 1000–300
= $700
You can see this playing out here for the 1st of January 2018, with the Laptop group set to a depreciation rate of 20%.
2.1.2. Declining Balance method
Now, suppose that your company is calculating depreciation using the declining balance method. Here’s an example to better understand how the depreciation will be calculated under this method:
You own an installed database server worth $5,000 purchased on 1st January 2017 and you set the depreciation rate as 40%. Here’s the calculation of depreciation expense and preparation of schedule.
Above, we’ve shown a depreciation schedule for the next 10 years. This depreciation schedule will continue indefinitely for 20 years, after which the final depreciation value will continue to be shown on the Asset Details page.
Note: For the Declining Balance method, you can edit the Purchase Date and Cost Price of an IT Asset during the first year of its purchase. However, as soon as the first year ends, you cannot change either of the fields.
Depreciated Value after X Months
Let’s say you want to calculate depreciation at an exact point in time, for example, August 2020. That means the system will calculate depreciation for 7 months only. Here’s how it will do that:
= Book Value at the start of year — {[Annual depreciation expense / 12] * 7}
= 1,080 — {[(1,080 * 40%) / 12] * 7}
= 1,080–252
= $828
You can view the depreciated value after X months on the Asset Details page:
2.2. Depreciation with a Salvage Value
2.2.1. Straight line method
In AssetSonar, the Salvage Value field has been hidden by default. If you’d like to add this to your depreciation calculations, go to Settings → Company Settings → Fields to Hide for Items. To see the Salvage Value field in the system, disable this setting.
To calculate depreciation, let’s take the same example as above — with a laptop worth $1000, and a depreciation rate set to 20%. This time, however, we have a salvage value of $100. You can add this by clicking ‘Edit’ on any Asset Details page. AssetSonar will now calculate depreciation as follows:
Monthly Depreciation
= [(Purchase Cost — Salvage Value) * Depreciation Rate]/12
= [(1000–100) * (20/100)]/12
= [(900)*(0.2)]/12
= 180/12
= $15
Further, let’s assume we want to find out its depreciated value after 12 months:
Depreciated Value After X Months
= Purchase Cost — [Monthly Depreciation * X]
= 1000 — [15 * 12]
= 1000–180
= $820
2.2.2. Declining balance method
Now let’s say your company is calculating depreciation using the declining balance method. Here’s an example to better understand how the depreciation will be calculated under this method:
You own an installed database server worth $5,000 purchased on 1st January 2015. It has a useful life of 5 years and you set the depreciation rate as 40%. Irrespective of its depreciation, you want the salvage value of the server to be $500 after 5 years. Here’s the calculation of depreciation expense and preparation of schedule.
Let’s explain the value of $148 highlighted above. The book value of the server at the beginning of year 5 is $648. Multiply this by the declining balance rate of 40% and you get $259.20. If this depreciation is used, the book value of the equipment at the end of year 5 will be $388.80 ($648 — $259.20), which is less than the salvage value.
However, we cannot allow that because the Asset is depreciated only to its salvage value under the declining balance method. Therefore, the depreciation in year 5 has been provided as follows:
Book value at the beginning of the year — Salvage value =
$648 — $500 = $148
Note: For now, calculating depreciation with salvage value has a limitation of 20 years. This means after 20 years, the salvage value will continue being shown as the depreciation value indefinitely. In case you want to calculate depreciation for an existing Asset using this method, make sure that the ‘Asset Purchased on’ date is within the last 20 years.
3. A Note on depreciation in the month of Purchase, Disposal, and Retiring
3.1. On Purchase
AssetSonar uses the full-month depreciation convention for the first month of an IT Asset’s life — irrespective of when it was purchased. It kicks in on the last day of the next month. Therefore, for the purposes of calculating depreciation, it wouldn’t make a difference if an item was purchased on the 7th of January or the 27th of January; both scenarios would lead to a full month’s depreciation being calculated on the 28th of February.
AssetSonar updates the depreciated value every month and shows it on the relevant IT Asset’s Details page, as displayed above.
3.2. On Disposal
AssetSonar does not charge depreciation in the last month of an IT Asset’s life — irrespective of when it was disposed of. This is because depreciation for a specific month is charged on the 31st of the next month. Since there is no ‘next month’ after an IT Asset is disposed of, no depreciation is charged for the last month.
Note: In AssetSonar, we charge depreciation first and then retire an item. This means that if an item was retired on the 1st of May, depreciation will be charged for the month of April first, after which it will be retired.
3.3. On Retiring
Once you retire an IT Asset, the Depreciated Value field on the Asset Details page continues to show the last depreciated value. However, if you mention a salvage value for that Asset, then the Depreciated Value field shows the salvage value after the IT Asset is retired.
4. Set your own year-ending month
You can also choose your own year-ending month by going to Settings → Add Ons → Asset Depreciation → Year Ending Month.
Let’s say you choose April as your year-ending month. You purchased an IT Asset on 1st January 2017, and your year ends on 30th April 2017. In this case, the depreciation on the Asset will only be calculated for four months for the first year, and only in case of the declining balance method.
Note: You cannot change the year-ending month once the depreciation for that year has already been calculated.
5. Depreciation reports and analytics
Next up, let’s see how you can get some useful insights on depreciation using the Reports Module. To do this, go to Reports → Asset Reports → Depreciation.
You’ll see a number of filters. Let’s see what they’re all about:
- Calculate Depreciation for these dates: Depreciation will be calculated for this duration. This section will only be visible if you uncheck the option to ‘Calculate Depreciation Since Purchase Date‘.
- Created By: Only Assets created by a certain user will be shown.
- Group: Picks the Group for which the depreciation report will be drawn up.
- Subgroup: Picks the Subgroup for which the depreciation report will be drawn up.
- Vendor: Only Assets supplied by a certain Vendor will be shown.
- Created On: Only Assets created between these dates will be shown.
As mentioned on the page, if the Purchase Date of an IT Asset came later than the date you’re attempting to calculate depreciation from, the system will revert to the Purchase Date as the starting point of depreciation calculation.
There is also a checkbox to include Retired IT Assets in your report, and, as mentioned earlier, to calculate depreciation since items’ Purchase Dates.
If you work around a fixed fiscal year, you can also use Year-to-Date or Life-to-Date depreciation. This way, you will not have to define the dates in the range each time you want a report.
In case you have added two depreciation methods in Settings → Add Ons → Asset Depreciation, then the report will also show an added filter which enables you to narrow the results according to each method:
6. Make informed financial decisions with customized views of depreciation data
AssetSonar gives you the ability to customize columns on the Asset Listings page and include depreciation metrics for you to make quick and informed financial decisions regarding IT Asset procurement and disposal.
You can add columns for both the Depreciated Value and Depreciated Rate on the Asset Listings page. To do so, click on the ‘Edit’ icon as shown:
Select the data fields of your choice, and hit ‘Save this view’.
The added columns show as follows:
By default, we’ve added columns on depreciation metrics in the All Active Assets and Retired Assets reports.
If you wish to include depreciation data in reports of your choice, you can create custom reports and include the depreciation-related columns as illustrated below.
Here’s a snapshot of the customized report we just prepared using some of the depreciation columns identified above.
And there you have it. All the ways AssetSonar can help you calculate depreciation on your IT Assets!
Read more: Recession Planning: A CIO’s Guide To Reducing IT Costs with AssetSonar
About AssetSonar
AssetSonar is a powerful ITAM software used by IT-intensive organizations and businesses all over the globe.
For more assistance, drop us an email at support@ezo.io.
