Different Methods of Depreciation CalculationDepreciation Calculation MethodsVarious depreciation calculation methods are mentioned below:

i.Base Methodii.Declining Balance Methodiii.Maximum Amount Methodiv.Multi Level Methodv.Period Control Methodi.Base MethodBase Method-SPRO> IMG> Financial Accounting (New)> Asset Accounting>Depreciation> Valuation Methods> Depreciation Key> Calculation Methods>Define Base MethodsBase method primarily specifies: The Type of depreciation (Ordinary/ Special Depreciation) Depreciation Method used (Straight Line/ Written Down value Method) Treatment of the depreciation at the end of Planned useful life of asset or when the Net Book value of asset is zero (Explained in detail later in other related transactions ).Straight Line Method (SLM) This is the simple method of depreciation. It charges equal amount of depreciation each year over useful life of asset. It first add up all the costs incurred to bring the asset in use and then it divides that by the useful life of asset in years to calculate the depreciation expense. E.g.: Say a Computer costs Rs. 30,000 and Rs. 11,000 (as additional set-up/installation/maintenance expenses) = Rs 41,000 and it is anticipated (expected) that its scrap value will be Rs. 1,000 at the end of its useful life, of say, 5 yrs.Total Cost = Cost of Computer + Installation Exp. + Other Direct CostsDepreciable Amount over No. of years = Total Cost - Salvage Value (At end of useful life)30,000 +11,000 =41,000 (Total cost)41,000 1,000 = 40,000 as theDepreciable AmountDepreciable Amount = Rs. 40,000, Spread out over 5 years = Rs. 40,000/5(Yrs) = Rs. 8000/- depreciation per annum.Written Down Value Method (WDV) This method involves applying the depreciation rate on the Net Book Value (NBV) of asset. In this method, depreciation of the asset is done at a constant rate. In this method depreciation charges reduces each successive period. This method should be used in those assets, where high depreciation should be charged in initial years. Assume the price of a depreciable asset i.e. computer is Rs. 40,000 and its salvage value after 10 years is 0. In this method NBV will never be zero.Depreciation Per year = (1/N) Previous year's value, Where N= No. of yearsSo in our example, the depreciation amount during the first year is[Rs. 40,000*1/10] =Rs. 4,000NBV of computer after 1styear= Rs 40,000- 4,000 = Rs. 36,000Depreciation for 2ndyear is[Rs. 36,000*1/10] =Rs. 3,600ii.Declining Balance Method Enter Transaction code AFAMD- Change View Declining Balance MethodAFAMD-Change View Declining Balance Method-SPRO> IMG> Financial Accounting (New)> Asset Accounting>Depreciation> Valuation Methods> Depreciation Key> Calculation Methods> Define Declining-Balance MethodsThis is the other name of Written Down Value (WDV) method as mentioned in Base method above.If the WDV method is specified in Base method then the following additional settings in this method can be used: A multiplication factor for determining the depreciation percentage rate. The system multiplies the depreciation percentage rate resulting from the total useful life by this factor. A lower limit for the rate of depreciation. If a lower depreciation percentage rate is produced from the useful life, multiplication factor or number of units to be depreciated, then the system uses the minimum percentage rate specified here. An upper limit for the rate of depreciation.If a higher depreciation percentage rate is produced from the useful life, multiplication factor or number of units to be depreciated, then the system uses the maximum percentage rate specified here.

iii.Maximum Amount MethodMaximum Amount Method-SPRO> IMG> Financial Accounting (New)> Asset Accounting>Depreciation> Valuation Methods> Depreciation Key> Calculation Methods> Define Maximum Amount MethodGenerally, If we uses Straight line method, then depreciation amount should be same for all years. But depreciation on asset is subject to change due to many factors e.g. any addition to the asset, change in estimate of useful life, change in estimate of scrap value etc.So for maintaining better control on the amount of depreciation, SAP has provided this method where we can specify the maximum amount that can be charged as expense in a particular year. If this is specified, user will not be able to post depreciation exceeding the amount specified here.

iv.Multi Level Method Enter Transaction code AFAMS- Change View Multilevel MethodAFAMS-Change View Multi Level Method-SPRO> IMG> Financial Accounting (New)> Asset Accounting>Depreciation> Valuation Methods> Depreciation Key> Calculation Methods> Define Multi Level MethodsAs the name itself suggests, this method provides the flexibility to specify different rate of depreciation for different years/periods. E.g. in some cases depreciation rate required is different in initial years and after that the rate should be changed. This can be achieved in SAP by using Multi level Method.In this method, SAP provides us the possibility to specify different levels during the useful life of an asset. Each level represents the period of validity of a certain percentage rate of depreciation. This percentage rate is then replaced by the next percentage rate when its period of validity has expired. We can specify the validity period for the individual levels of a asset in years and months.It also provides the flexibility to us to choose the defined validity period, which can begins with The capitalization date. The start date for ordinary or tax depreciation. The original acquisition date of the asset under construction. The changeover year.

v.Period Control method Enter Transaction code AFAMP- Maintain Period Control MethodAFAMP- Maintain Period ControlMethods-SPRO> IMG> Financial Accounting (New)> Asset Accounting>Depreciation> Valuation Methods> Depreciation Key> Calculation Methods> Maintain Period Control MethodsIt is one of the most relevant method to keep control on the calculation of depreciation. Here we mention the different rules for periods in case of different scenarios for assets. This method controls the period for which the depreciation is calculated on an asset during the year.Under this method, we can specify the period for which the depreciation should be calculated in case of : Acquisition of Asset/Subsequent acquisition Retirements/Scrap Sales/Transfers Upward/Downward Revaluation

There are some standard methods that has been provided by SAP e.g. Pro rata atmid period, Pro rata at period start date, at the start of year or At mid year etc. E.g., If client requires to depreciate an asset from the First day of the year in which the asset is capitalised, we can use the method `At the start of the Year` in case of Acquisition.This method has been explained with the help of one comprehensive example below:Example: A company wants to charge depreciation as follows. Client follows calendar year from January-December 2013 asAccounting/Fiscal year.1.In case of Asset Acquisition:Depreciation should start from the First day of the year in which asset is acquired.2.In case of Asset Addition:Depreciation should start from the Ist day of period of date of addition.3.In case of Asset retirement:Depreciation should be charged upto Mid period regardless of date of retirement.4.In case of Asset Transfer:Depreciation for the full year should be charged by the transferee company.After having knowledge of all the depreciation calculation methods, we can assign the depreciation calculation methods to the depreciation key.Creation of Depreciation key: Asset accounting module of SAP calculates the depreciation on Assets based on the configuration done for Depreciation key. Depreciation Key basically contains the calculation methods which in combination control the following: Period for which Depreciation is charged Method of Depreciation Scrap value, if any Planned change in Method of DepreciationWe enter a separate depreciation key for eachdepreciation areain the asset masterrecord.Creating Depreciation Key:Enter Transaction code AFAMA- Change View Depreciation Key AFAMA-Change View Depreciation Key-SPRO> IMG> Financial Accounting (New)> AssetAccounting>Special Valuation> Net Worth Tax>Depreciation Key>Define Depreciation keysAs depreciation key is Chart of Depreciation dependent, system will prompt to enterchart of Depreciation on accessing transactionAFAMA and screen shown below willbe displayed.

Here, we need to specify the following at appropriate fields\check boxes: No./Name of Depreciation key Numeric/Alphanumeric. Maximum Amount method (Discussed above in methods of depreciation) Cutoff value key to control the scrap value if no absolute scrap value is maintained in the system. The cutoff percentage rate that is determined on the basis of this cutoff value key is only used by the system when: There is no absolute scrap value entered in the the depreciation areas of the asset concerned (an absolute scrap value takes precedence over a cutoff percentage rate) Negative book value is not allowed for the asset Whether ordinary depreciation should continue to be charged in a year in which special depriciation is also charged on the asset or not? Set `Depreciation to the day` indicator to allow system to calculate the depreciation according to the number of days the asset is used.If this indicator is set, period control method assigned to depreciation key will be ignored and Asset value date will be considered as the depreciation start date.Assignment of Depreciation Calculation Method to Depreciation key:Select The depreciation key and click on Assignment of Calculation methods. Now assign different methods to depreciation key.

Amendments in depreciation policies as per Companies Act 2013-Configuration and workflow for Indian clients

As we all know Companies Act 2013 has to be implemented from this FY 14-15.The major change in respect to Asset accounting is, depreciation has to be calculated based on useful life rather than rates of depreciation.Lets see examples of possible scenarios

Those who use depreciation rate can calculate useful life by divide 100 by the rate and those who use useful life method already can use the same while seeing the below scenarios.

Asset classDepreciation rateCalculated useful lifeCO.ACT 2013 Useful life

120%55

210%105

35%2030

Scenario 1:For Asset class 1, useful life is same in old method as well as Companies Act prescribed useful life. So there is no impact in depreciation.Scenario 2a:If for some assets in asset class 2 expired useful life is 3, then net book value should be depreciated over remaining useful life of 2 years.Scenario 2b:If for some assets in asset class 2 expired useful life is 6 years, then whole net book value should be charged off immediately and has to adjusted in opening retained earnings.Scenario 3:For assets in asset class 3, the net book value should be depreciated over remaining useful life.So we have to do configuration of depreciation keys to meet the requirements as per companies act 2013. Fortunately we are in SAP environment. So making changes in our system is very easy. It calculates automatically the retro calculations also. Lets see the configuration part.We need to create only one depreciation key which will suit for all asset classes and all type of scenarios.

SAP has provided one depreciation key LINS for depreciation of assets over remaining useful life. Just clone LINS and create customised dep key say ZLIN. The properties are shown in screenshots.

Depreciation Key ZLIN is created vide T codeAFAMAby cloning LINS

Then we will see the base method vide T codeAFAMR

Then we will see Multi level method vide T codeAFAMS

Then we will see Period control method vide T codeAFAMP

These are all the config steps. Kindly make suitable changes to suit your requirements.

Now the next step after creating dep key is to update existing assets with the new dep key say ZLIN and useful life.

Many companies may be having lakhs of asset reocrds. So do you feel it is a herculean task to update asset with new dep key and new useful life. Thats where SAP comes in for our rescue. We can do all mass updates with little work.

SAP has provided a T codeOA02to mass update of asset records.Let's see the steps involved in mass update.Create substituition vide T code OA02.

Then go to T codeAR01or any other standard reports like S_ALR_87011990 and create worklist

Then release the worklist vide T codeAR31

The mass changes can be done vide other modes like LSMW or BDC also. You can choose which is suitable for you.

******************************************************************************************************==========================================================================================******************************************************************************************************

Changes in Asset Accounting for Indian Companies Act 2013Below is the changes that will be taking place in the system due to changes in Company's Act 2013 incorporation:

1.) If life of the asset has decreased:- e.g. there is asset for which original life is 10 years, 3 years already completed as on 31stMarch 2014 and now life has decreased to 7 years. In this scenario, WDV as on 31stMarch 2014 should be depreciation over the period of 4 years instead of 7 years. How to carry out this change1. ANew Depreciation keywould be created which will calculate the depreciation on the remaining useful life of assets as maintained in the Asset Master.2. For the New Assets, no changes are required but for Existing Assets, the changes in the Asset Master is required to be done in theUseful Life of Assetas well as in theDepreciation Key of the Asset.This changes will be done by the User's.

2.)If life of the asset has increased:-e.g. there is asset for which original life is 10 years, 3 years already completed as on 31stMarch 2014 and now life has decreased to 12 years. In this scenario, WDV as on 31stMarch 2014 should be depreciation over the period of 9 years instead of 7 years. How to carry out this change3. This will be catered in the same way as is done for the above point (1.)

3.)If the life of the asset is already over after change in rates:-e.g. there is asset for which original life is 10 years, 7 years already completed as on 31stMarch 2014 and now life has decreased to 6 years. In this scenario, WDV as on 31stMarch 2014 should be charged to the opening reserve. How to carry out this change4. In this case an entry is to be posted in the system by User, for which the GL's needs to be provided by the business.

Below shows the detailed example for the above mentioned points.

1. If the Life of asset has decreased:

Asset No. : 211000112Depre key ZS15 which is depreciating the Asset on Useful Life basis.

The planned values for depreciation posting is as below for Fiscal year 2015 :

Now changing the useful life of assets from 4 years to 3 years. So now the Asset will be write off in 3 years as shown below:

The Comparison tab is as below:Depreciation planned values for the year 2015 is as follows:

From above we can see that depreciation per period has changed from 415.63 to 581.88 due to change in useful life of assets.2. If the Life of asset has increased:Asset No. : 211000113Depre key ZS15

The planned values for depreciation posting is as below for Fiscal year 2015 :

Now changing the useful life of assets from 4 years to 5 years. So now the Asset will get written off in 5 years as shown below:

The Comparison tab is as below:

Depreciation planned values for the year 2015 is as follows:

From above we can see that depreciation per period has changed from 1607.81 to 1250.52 due to change in useful life of assets.3.If the life of the asset is already over after change in rates:Asset No. : 211000038Depre key ZS15

The planned values for depreciation posting is as below for Fiscal year 2015 :

Now changing the useful life of assets from 4 years to 1 years. But here already the expired useful life is of 2 years, whereas according to Company's Act, 2013 the useful life of Asset should be 1 year only.

The Comparison tab is as below:

Depreciation planned values for the year 2015 is as follows:

From above we can see that depreciation per period has changed from 3750.66 to 0 due to change in useful life of assets. And the remaining NBV of the Asset of 86265.40 will be removed by executing T-CodeABAAfor this Asset as shown below:

Then press enter. After this on next screen enter the NBV of the Asset i.e. 86,265.40

After this save the Document as below:

We can check in the Asset Explorer that the above document is posted and the NBV of the Asset is 'Nil'

Here the Document is posted in AA only and not in FI. The unplanned Depreciation entry will get posted in FI when Depreciation Run is executed for this period through T-Code AFAB as below:

After this Execute the same :

From above we can see that this entry will be getting posted in the system. The accounting entry for the same is :

This is the testing GL that we have used in posting key 40, that would be the Reserve GL that would be provided by the Client.After this the entry will be posted in the FI and by AA and FI will be in synchronization.Kindly revert if any additions or changes or suggestions for the above document.