The depreciation process is the systematic allocation of an asset’s cost over its useful life. It reflects how the value of assets (like machinery, equipment, or vehicles) decreases over time due to wear and tear, usage, or obsolescence.
AssetsAdm streamlines and automates the depreciation process, ensuring accurate and timely accounting for asset value over time.
While scheduling depreciation, users can select the division, choose the applicable depreciation act, and define the start and end dates. Additionally, they can specify cost center-wise groupings, apply a custom depreciation rate, and add relevant remarks,
Depreciation Act can be Company Act or IT Act – Depreciation under the company act is used for the preparation of financial statements , such as the Balance sheet and Profit & Loss account. In contrast, depreciation under the IT Act ( Indian Income tax Act) is calculated for the purpose of determining taxable income and computing tax liability payable to the government.
In the Company master, set ‘Enable IT Act’ to ‘No’ for disabling depreciation as per the Income Tax Act. For companies operating outside India, where the income tax is not applicable, this setting should remain disabled. Charitable trusts, such as certain hospitals are exempt from paying income tax. Therefore, they typically disable the ‘Enable IT Act’ setting in the company master.
Under the companies act, the depreciation percentage is derived from the asset’s estimated life and its value.The income tax act permits only the written down value(WDV) or diminishing method for depreciation. In the IT Act, percentage of depreciation is taken directly from the depreciation group IT Act master. It is important to verify that the Asset Group and the IT Act Depreciation Group are correctly configured before initiating depreciation processing.
Start date and End date - Depreciation start date and end date must be any period within the financial year start date and end date. Usually Company Act depreciation is processed for monthly, quarterly, half yearly or yearly whereas the IT Act is processed yearly only.
Include cost center – This radio button enables cost center–wise depreciation. To use this feature, users must define cost center details in the asset master. Ii will further group the Asset Group. For example -> Computers & Electronics ( Asset group)-> Clinical Income(cost center) -> ENT( sub cost center)
Custom Depreciation Rate - If an asset's value is below a certain amount, the system depreciates the full value without checking the salvage value or applying the correct depreciation rate, which causes the asset value to become zero. This option is to help organisations to fully depreciate the low value assets and not to carry those to the next financial year.
After entering the details, the user can click on the Process Depreciation button. If any unposted depreciation exists, the system will not allow it, and will show error as shown below - users will need to make sure there is no pending depreciation before processing the new one. User can post / delete the pending depreciation in order to calculate new.
If the depreciations already created in the selected time period, an error will get.Otherwise the depreciation document will get created and get a message
Once the depreciation is processed, in the ledger tab page users can see the following information like Asset Group, Cost center and sub cost center( if cost center included) , start date, end date, Total number of assets, debit account,credit account and depreciation amount.The debit and credit accounts define the destination accounts for the corresponding journal entries. These accounts can be mapped in the asset group master.
Third tab page ‘Assets’ shows the asset related details like Asset Code,Asset group name, depreciation start date, end date, number of days, Asset value, Accumulated depreciation etc
Clicking the "Post to Finance" button changes the status from "Pending" to "Posted" and updates the accumulated depreciation or accumulated depreciation IT Act field in the asset master.
Option 1
Consider, you have an asset which is purchased one year back and do have the purchase date, purchase value, estimated life etc
In this option, the user can skip entering accumulated depreciation details in the asset master. Instead, the current book value can be directly entered in the ‘Asset Value’ and ‘Asset Value (IT Act)’ fields as shown below.
| Market value | - 8000 |
| Asset value | - 8000 ( Market value considered as asset value) |
| Asset value IT Act | - 8000 (Market value considered ) |
| Accumulated Depreciation | - 0 |
| Accumulated Depr. IT Act | - 0 |
| EST Life | - 4 Years(remaining useful life considered, as per physical condition) |
This option is used only for the asset data where purchase details are not available when we start the asset module.
Option 2
Consider an asset that was purchased 1 year ago at a cost of ₹10,000 and its EST Life is 5 years. This asset’s purchase value is 10000 and installation cost 500. Accumulated depreciation and accumulated depreciation IT Act for 1 year is 2000 and 3000 respectively.Residual value ( Salvage value / Scrap value ) is 525
In this option, users can enter asset master data by providing the full asset value and its corresponding IT Act value. In this case, accumulated depreciation values must also be entered as shown below. The estimated life (EST Life) can be entered as the full life of the asset.
| Purchase value | - 10000 |
| Asset value | - 10500 |
| Accumulated Depreciation | - 2000 |
| Asset Value IT Act | - 10000 |
| Accumulated Dep IT Act | - 3000 |
| EST Life | - 5 |
| Residual value | - 525 |
WDV Method
Formula for calculating depreciation rate (WDV) = {1 – (s/c)^1/n } x 100
n = Remaining useful life of the asset (in years)
s = Salvage value at the end of useful life of the asset
c = Cost of the asset/Written down value of the asset
yearly depreciation = (asset value - accumulated depreciation) * % of depreciation rate.
Depreciation amount = (yearly depreciation ) x actual days / 365
If an asset is acquired in between the financial year, actual days are calculated using installation date. ( not purchase date).
Asset Value = 10,000
Salvage Value = 2,000
Remaining useful life = 5
Depreciation Rate = [ 1- (2000/10000)1/5] × 100
= [1-(0.2)0.2] × 100
= [1-0.7248] × 100
= 0.2752 × 100
= 27.52%
Depreciation Amount = Book Value × Depreciation Rate / 100
= 10,000 × 27.52 / 100
= 10,000 × 0.2752
= 2,752
Straight Line Method
Accumulated depreciation = (Asset value - Residual value) / EST Life
Equal depreciation is charged every year over the asset’s useful life.
Eg: (10000 - 2000) / 5 = 8000 / 5 = 1600
Depreciation percentage is taken from the Depreciation group (IT Act).
Estimated life and salvage value is not considered.
If assets acquired in between the financial year,less than 180 days half year is considered and otherwise full year depreciation is considered.
When you calculate the second year, accumulated depreciation will reduce from the asset value and multiply with depreciation percentage, similarly for further years.
Depreciation = Asset Value * (depreciation rate / 100)
If the depreciation rate is not defined in the depreciation IT group master, the asset’s book value will remain the same, as no depreciation will be calculated.
The depreciation process can be configured based on either the purchase date or the installation date, as specified in the client configuration file.
The system will automatically consider the period of processing( applicable days for depreciation) based on purchase/installation date, sale date, condemnation date etc.
Enable IT Act parameter in the company master can be set for enabling IT Act.
In Company act, if Residual /Salvage Value of asset is not entered in diminishing (written down) method, depreciation amount will be processed as zero.
EST Life need to be entered properly for depreciation process. EST life column is required to calculate depreciation in company act method. If EST life value is 0 then the record will not be considered for processing
It is important to verify that the Asset Group and the Depreciation Group IT Act are correctly configured before initiating depreciation processing.
The acquisition date column is mandatory in the asset module to include in depreciation processing.