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Fixed Assets Register
A complete fixed asset register and the key to your entire asset management solution. |
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Depreciation Options
Flexible configuration options for all fixed assets with a broad range of depreciation methods rates and types. |
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Finance & Operating Contracts
Makes you the expert in accounting for capital finance leases, hire purchase, chattel mortgages operating leases, tenancy leases and equity finance contracts. |
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CapEx Budgeting
Control the capital budgeting, planning and forecasting business process and monitor your performance in real-time. |
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CapEx Work in Progress
A complete CapEx process model using world's best-practice, from documentation of the project plan through to capitalisation. |
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Operating Expenditure
Manage purchase requisitioning and the capture of day to day operating expenditure, as it happens, where it happens. |
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A comprehensive set of tools to ensure that you can meet and maintain your depreciation compliance standards
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- special deductions
- residual values
- depreciation limits
- notional depreciation
- effective life cycle
- standard templates
Activa incorporates a broad range of depreciation methods to ensure accuracy and consistency in maintaining tax and statutory compliance. Some of these methods are really quite simple and bear little explanation, but others are considerably more complex and may involve additional conditions or depreciation parameters in order to achieve the correct outcomes.
In particular, special accelerated depreciation deductions, notional depreciation, residual values and depreciation limits, impact on the depreciable cost base used for calculating the depreciation charge. For instance, under IFRS, for any asset that has a residual value the cost base for the depreciation calculation is reduced by the amount of the residual value and the subsequent rate determined strictly according to the effective life in years. There are, of course, many other permutations that can apply.
The following notes provide some explanation of the conditions and the variations that can be applied in the Activa Fixed Assets Register.
Special deductions
Any requirement for special depreciation allowances involving an 'up-front' [initial] deduction is a variation to the standard methods and can only be applied in the software using the Concessional Deductions option. This is described in detail separately but essentially allows for the selective application of special allowances on the basis of a specific depreciation template, a geographical location, the relevant asset class, asset type or any other distinguishable property that meets the defined conditions.
Special deductions are applied before normal depreciation commences and as a result they also reduce the depreciable cost base of the asset by the amount of the deduction.
Residual values
When using effective life depreciation techniques, the life term applied to any asset relates specifically to its service and application. In such circumstances, there is often a residual value after the effective life of the asset has expired which reflects its salvage value.
In Activa, the depreciation conditions for individual asset types are configured in templates that also include the life term and residual value percentage. As an asset record is added to the system it inherits these pre-defined conditions for both accounting and tax depreciation.
In this process, the residual value percentage is converted to a currency value in the asset record. This value reduces the depreciable cost base of the individual asset accordingly. The depreciable cost base is then used for calculating periodic depreciation charges. Assets will depreciate over the life term down to the residual value and then cease depreciating.
Depreciation limits
The term 'depreciation limit' here refers to a limitation placed on the amount of the original cost of an asset that can be recovered as a deduction for tax purposes. It has two specific uses in Australian Tax Law;
The application of a depreciation limit effectively reduces the depreciable cost base to the value of the limit. In practical terms, this means the asset will calculate the depreciation charge using the limit as the depreciable cost base and will only accrue a total deduction equal to the limit and then stop.
Since both of these applications relate to tax deductions it is unlikely that either special depreciation deductions or residual values will also apply. In any case, residual values should not be used in conjunction with luxury limits.
Notional depreciation
The term 'notional depreciation' here refers to depreciation claimed by a previous owner or up to the date of recording. That is, depreciation deductions applied prior to the asset record being brought to account in the asset register. In Activa, this can only be applied during system implementation, or when adding a new asset record, and then only by using a dedicated import function.
Technically, it relates only to tax depreciation where deductions were claimed previously or by some other party and the total available future deductions are limited by law to the original cost of the asset. In this context it is used in conjunction with a 'depreciation limit' representing the original tax cost. This is particularly relevant to building allowances.
Effective life and depreciation rates
There is a specific relationship between the effective life term of an asset and the percentage depreciation rate regardless of any special deductions, residual values or any other conditions. That is, if the remaining useful life term of an asset is varied during its normal life-cycle for any reason, it will result in a change to the depreciation rate such that the asset will then depreciate to zero value [or its residual value] over its adjusted remaining useful life.
Activa uses an effective life term expressed in months so that a life of 7.5 years, for instance, equals 90 months. On a straight-line, or prime cost basis, this equates to a rate of 13.33% per annum. For accelerated methods it varies as the multiple of the method. For instance, 200% Diminishing Value method over 7.5 years will result in an annual rate of 26.66%.
Templates
Templates are specifically designed to bring all of the prevailing depreciation parameters for a single asset type together for each depreciation book in the system.
Individual template records are only required for each asset class or asset sub-class of assets where the depreciation conditions are common or, more specifically, where the conditions are unique for that individual asset type. In this way the number of templates, and therefore the administration required to maintain the depreciation parameters, can be kept to an absolute minimum.
Even in the worst case scenario, these templates only require review once per year or as legislation changes are applied.
Related information
These notes should be read in conjunction with the page on Depreciation Options and the Fixed Assets Register. The page on Depreciation Methods may also be helpful if you require more detail on each method;
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