Oracle Assets allows you to define depreciation formulas to calculate annual depreciation rates.
The Depreciation Formula window is used to define depreciation formulas. When finished defining your formula, it is recommended that the formula be tested using the Test Formula tabbed region.
Note: Defining depreciation formulas requires some knowledge of SQL. See: Oracle 8i SQL Reference.
Note: To meet the requirements for the Japan 250% Declining Balance depreciation method, the Guarantee Rate Evaluation check box was added to the Depreciation Method window in addition to the Use Japan NBV Calculation for Impairments. The check boxes are only displayed when the FA: Japan 2007 Tax Reforms Features profile option is set to Yes. For more information, see Japan Tax Reforms features.
Navigate to the Depreciation Methods window.
Navigation: Setup: Depreciation > Methods
Enter a depreciation Method name and Description.
Select Formula from the Method Type poplist.
Choose whether to use Cost or NBV as the basis for calculating depreciation from the Calculation Basis poplist.
Optionally select one of the following depreciable basis rules, if NBV is selected as the basis for calculating depreciation:
Beginning Period Balance
Period End Average
Choose whether the depreciation method allows asset depreciation in the year it is retired.
Choose the Exclude Salvage Value check box if the method is to exclude the salvage value from the depreciable basis. Salvage value can only be excluded if the flat-rate method uses NBV as the calculation basis.
Choose whether the method is a straight-line method.
Enter the life in years and months.
Choose the Formula button to define depreciation formulas in the Depreciation Formula window.
While in the Define Formula tabbed region, enter a formula by clicking buttons to insert elements into the formula.
Optionally test the formula by choosing the Test Formula tab.
Save the formula.
Note: To meet the requirements for the Japan 250% Declining Balance depreciation method, the Rate Details button was added to the Depreciation Formula window. The Rate Details button is displayed only when one of the seeded Japan depreciation methods is used. For more information, see Japan Tax Reforms features.
In the Depreciation Formula window, go to the Test Formula tabbed region.
Optionally enter parameters, such as Life in Years or Salvage Value.
Note: To meet the requirements for the Japan Tax Reforms, the Cost and NBV at Beginning of Year parameters were added to the Test Formula tabbed region. The system displays these parameters only when the FA: Japan 2007 Tax Reforms Features profile option is set to Yes. For more information, see Japan Tax Reforms features.
Review the test results confirming the results depreciated the asset correctly.
Save the formula.
The Depreciation Formula window contains a calculator that is used to insert elements into formulas.
Attention: Click on the different buttons on the calculator to enter in the formula in to the display field. Formulas cannot be entered directly into the display field. In addition to the standard calculator keys used to insert constants and operators directly into the display, the Depreciation Formula: Method Name window contains the following special keys: Variables, Functions, and Formulas.
In addition to the standard calculator keys, which insert constants and operators directly into the display, the Depreciation Formula: Method Name window contains the following special keys: Variables, Functions, and Formulas.
Oracle Assets provides a poplist of variables. When a variable is selected, Oracle Assets inserts the value for the asset it is depreciating. For example, if you enter 1/<Salvage Value>, when depreciation is executed for the asset using the formula, Oracle Assets retrieves the salvage value of the asset when calculating depreciation.
See: How Oracle Assets Calculates Depreciation in a Short Tax Year.
Displays previously defined formulas in the Formulas poplist. Use the Formulas poplist to insert existing user-defined formulas into the display field.
Any formulas you defined previously appear in the Formulas poplist. Use the Formulas poplist to insert existing user-defined formulas into the display field.
For some companies, it may be advantageous to depreciate an asset at a certain rate, or at a specific point in time, or to begin depreciating the asset at a different rate. Oracle Assets allows you to define depreciation formulas in which the depreciation rate changes at a specified point in time. In order to define specify a formula the change a depreciation rate at a specified time; define the formula using a combination of the SQL DECODE and SIGN functions.
For more information on SQL, see: Oracle 8i SQL Reference.
You have an asset with a life of 15 years. The asset's depreciates at a rate of 0.05 while the asset's remaining life is greater than 10 years. See: How Oracle Assets Calculates Depreciation in a Short Tax Year.
When the asset has a remaining life of 10 years, the asset's depreciates at a rate of 0.07. When the remaining life of the asset is less than 10 years, the asset's depreciates at a rate of 0.08. To accomplish this, enter in the following formula in the Depreciation Formula window:
DECODE (SIGN (<Remaining Life2> - 10), 1, 0.05, 0, 0.07, -1, 0.08)
Switch from one depreciation method to another, depending on the rate:
GREATEST (1 / <Life> * 2, 1 / <Remaining Life1>)
The following table provides examples of how to use the available functions:
| Function | Example | Result |
|---|---|---|
| Decode | Decode(Remaining Life 1, 3, 0.3, 2, 0.2, 0.1) | If Remaining Life 1 is 3, Oracle Assets returns the value 0.3; if Remaining Life 1 is 2, Oracle Assets returns the value 0.2; otherwise, Oracle Assets returns the value 0.1 |
| Greatest | Greatest(2/Life, 0.5) | Oracle Assets returns the greater of 2 divided by the life or 0.5. |
| Least | Least(2/Life, 0.5) | Oracle Assets returns the smaller of 2 divided by the life or 0.5. |
| Power | Power(0.5, 3) | Oracle Assets returns 0.5 to the power of 3 (0.125). |
| Round | Round(2.33333, 4) | Oracle Assets rounds to the fourth position and returns a value of 2.3333. |
| Sign | Sign(Life - 5) | If Life minus 5 is a positive number, Oracle Assets returns a value of 1; if Life minus 5 is zero, Oracle Assets returns a value of zero. Otherwise, Oracle Assets returns a value of -1. |
| Sqrt | Sqrt(25) | Oracle Assets returns the square root of 25 (5). |
When you use formula-based depreciation, you have the flexibility to create custom depreciation methods to meet your specific needs. However, it is essential that you plan and thoroughly test your custom depreciation formulas to ensure that your assets will depreciate correctly. Poorly thought out depreciation formulas can cause unexpected and incorrect depreciation rates.
Note: Oracle Assets does not validate custom depreciation formulas.
The following is an example of a poorly thought out depreciation formula:
100 / <Salvage Value> + 0.01
If the salvage value of an asset is greater than 100, the asset depreciates at an expected rate (between 0 and 100). However, if the salvage value of the asset is less than 100, the asset actually appreciates over time.
Also, if the salvage value for an asset is zero, Oracle Assets automatically sets any amount you divide by the salvage value to zero (100 / 0 = 0). In this case, the rate when you use the above depreciation formula would always equal 0.01.
Finally, if the salvage value is set to null for an asset, the value is automatically set to 0. Again, the rate when you use the above depreciation formula would always equal 0.01.