[How-to] Use Asset Depreciation in EZOfficeInventory

Tracking depreciation is a breeze with EZOfficeInventory. Our asset depreciation software enables you to manage depreciation across different groups, and draft reports utilizing this data for actionable insights.

1. Getting Started

You can choose between running two depreciation models, i.e. Straight Line method or Declining Balance method. If needed, you can even run both the methods at the same time. Depreciation is configurable at the group level. To start off, go to Settings → Add Ons → Asset Depreciation → Enabled.

Currently, you can see that the Straight Line method has been applied. To apply the second method of calculating depreciation, click on the ” button.

This opens up the following overlay, where you can choose ‘Declining Balance’ method, as shown below:

If you want this method to be active, i.e. for depreciation to be calculated according to it, you must select the ‘Active’ checkbox. You can always go back and edit any of the two depreciation methods to make them active or inactive, as needed.

Note: For the Declining Balance method, if you switch from Active to Inactive, you will lose any previous data on depreciation. Even if you switch back to Active again, the data will not be recovered.

Next, go to Groups 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 chosen method of 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 either method, click Edit, as highlighted below:

The depreciation rate is set to 20% by default. You can change this using the field below:

Once you’re done editing the rates, simply click ‘Update’ and you’re done.

2. How is Depreciation Calculated in EZOfficeInventory?

In EZOfficeInventory, depreciation is calculated on a monthly basis. See the following scenarios to see how that plays out:

2.1. Depreciation Without a Salvage Value

Straight line method

Your company buys a laptop for $1000, and sets the depreciation rate to 20%. We would calculate depreciation as follows:

Monthly Depreciation
= [Purchase Cost * Depreciation Rate]/12
= [1000 * (20/100)]/12
= 200/12
= $16.666

Say the 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 General Electronics group set to a depreciation rate of 20%:

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 a forklift worth $500,000 purchased on 1st January 2017 and you set the depreciation rate as 40%. Here’s the calculation of depreciation expense and preparation of schedule:

Here, we’ve shown the 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 declining balance method, you can edit the Purchase Date and Cost Price of an 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 we are calculating depreciation for 7 months only. Here’s how you can do that:

= {[Annual depreciation expense / 12] * 7} – Book Value at start of year

= {[(108000 * 40%) / 12] * 7} – 108000

= 25200 – 108000

= $82,800

This gives you the depreciated value after X months and is the same value you can see on the Asset Details page:

2.2. Depreciation With a Salvage Value

Straight line method

In EZOfficeInventory, 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, you can disable the 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 detail page. We would 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

This time, 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

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 a forklift worth $500,000 purchased on 1st January 2015, 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 forklift to be $50,000 after the 5 years. Here’s the calculation of depreciation expense and preparation of schedule =

Let’s explain the value $14,800 highlighted above. The book value of the equipment at the beginning of year 5 is $64,800. Multiply this by the declining balance rate 40% and you get $2,5920. If this depreciation is used, the book value of the equipment at the end of year 5 will be $38,880 ($64,800 – $25,920), which is less than the salvage value.

However, that cannot be allowed 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 =

$64,800 – $50,000 = $14,800

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.

And there you have it. All the ways EZOfficeInventory helps you calculate depreciation on your assets!

Some businesses find it convenient to calculate depreciation in useful life of assets. This option is available for both Declining Balance and Straight Line depreciation method. In order to apply useful life depreciation method, you have to go the Groups Details Page.

Click on ‘Edit’ to change the type of depreciation method for the entire Group. For instance, if you have selected Straight Line depreciation method, then you can switch between percentage of depreciation or useful life of assets.

Once you hit update to change the depreciation mode, an overlay will appear asking you to reconfirm. When you switch your depreciation mode, all previous data is lost.

All changes regarding depreciation mode change can be viewed under the ‘Events’ tab on the Group details page.

3. Reports and Analytics

Next, let’s see how you can get some valuable insights on depreciation using our 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 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 Assets in your report, and, as mentioned earlier, to calculate depreciation since items’ Purchase Dates.

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:

Once you apply all these filters, you will be able to run the Report.

4. Custom Reports

You can use the custom report to perform some additional computation that might be missing in the Asset Depreciation report. Go to Custom Reports, select Assets in Step 1.

In Step 2 you will be able to see useful and remaining useful life depreciation columns.
Useful life : this shows the useful life of the asset based on the useful life selected in the Group. Note that this is not available if you have selected the depreciation rate on the Group page.
Remaining Useful life : this shows the remaining life of the asset. This can prove useful if you want to keep a track of how many items need to be replaced in the future.

Life to Date (LTD) Depreciated Amount : this shows the total depreciation for the lifetime of the asset. LTD Depreciation Value : shows the current value of the asset. Year to Date (YTD) Depreciation Amount : shows the total depreciation this financial year. YTD Depreciation Value : shows the current value of the asset. To see depreciation for a selected period select the related module Depreciation Between Dates.

Depreciation Period : The period selected for the depreciation.
Initial Book Value : Starting value at the start of the selected period.
Depreciated Amount : Depreciation in the selected period.
Depreciation Value : The value of the asset at the end of the period.
Depreciation Type : This will show the depreciation type you have applied. Useful only if you have multiple depreciation methods set up to run concurrently. Once you select the columns, in Step 3, the depreciation period filter is automatically applied. You can edit the dates according to your requirements:

Note: For the Depreciation Period, even if you select 16-11-2022 to 17-12-2022, the Report will show results from 1-11-2022 to 31-12-2022 i.e inclusive for both months. Depreciation cannot be calculated for specific dates within a month. In Step 5, you can apply different functions to view depreciation rates for your Asset. Some useful functions to apply are:

Total current value of Items
Total depreciation of Items in a specific period

The functions will be displayed at the end of the Report:

Here is how the Report will be displayed:

5. A Note on Depreciation in the Month of Purchase, Disposal and Retiring

On Purchase: EZOfficeInventory uses the Full-Month Depreciation convention for the first month of an asset’s life – irrespective of when it was purchased – and this 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 5th of January or the 25th of January; both scenarios would lead to a full month’s depreciation being calculated on the 28th of February. The depreciated value will be updated every month and show up on the relevant asset’s detail page, as shown above.

On Disposal: EZOfficeInventory does not charge depreciation in the last month of an asset’s life – irrespective of when it was disposed. This is because, as we saw earlier, depreciation for a specific month is charged on the 31st of the next month. As there is no ‘next month’ after an asset is disposed off, no depreciation will be charged. Note: In EZOfficeInventory, 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.

On Retiring: Once you retire an asset, the Depreciated Value field on the Asset Details page will continue showing the last depreciated value. However, if you mention a salvage value for that asset, then the Depreciated Value field will show the salvage value after the asset is retired.

Salvage value when uploading/updating assets: There is an option to auto-calcuate salvage value, when salvage value is blank for assets. This can be done while uploading you assets. After uploading the excel, select the retire and retirement reason column. You will then be able to select the following options shown in the image below: