Back in September, I started a series and honestly figured I would not have taken this long to get to “part 2”! What I’m going to do is make this part of my #TipTuesday series and try to get through it a little bit faster!
Today’s post is what happens during the Depreciation routine in Fixed Assets, from a GL posting flow perspective. The previous post in this series was GL posting flow around additions, in 3 specific areas:
- Additions during the current fiscal year (aka, normal operations once you’re up and running with Fixed Assets).
- Additions that might occur from data conversion, that have LTD depreciation already but no current year depreciation yet.
- Additions that might occur from data conversion, that have LTD depreciation and current year depreciation from a previous system.
Where I left off
The ending point of my previous scenarios was this: 3 “building” assets added to Dynamics GP, one for each scenario above. One asset, building 3, was converted from a hypothetical previous system where Q1 amortization had already been booked. The point of that was to show what occurs when converting assets with both YTD and LTD Depreciation values.
Scenario #1 – Q1 Depreciation
For this post, I ran through 3 depreciation routines, and the first one was to amortize for Q1 2019. I’m depreciating all assets and the target date is March 31, 2019.
Scenario #1 – GL posting results
That depreciation routine resulted in the following journal entry. Building 1 was amortized for $1,500, Building 2 was amortized for $3,000 and Building 3 was not amortized at all.
- DR “Depreciation” Account (000-6000-00) for $4,500 combined
- CR “Reserve” Account (000-1600-00) for $4,500 combined
Why those values and what happened to Building 3? Here’s the explanation:
This asset card is for a “new in 2019” building and was set up with an averaging convention of “Half-Year”. The annual amortization will be $12,000 eventually ($360,000 cost, 30 year life straight line) but in the first year, the amortization is following a half year rule. $6,000 in the first year = $1,500 per quarter.
This asset has the identical cost, but was purchased in a previous year and LTD depreciation is already factoring in the half-year rule from the year of purchase. Therefore, it is going to be amortized at $12,000 per year which is $3,000 per quarter.
Building 3 was also purchased in a prior year, and the card was created with YTD depreciation up to March 31, 2019. So, for Q1 2019, it requires no additional depreciation and nothing was calculated.
Scenario #2 – Q2 Depreciation
Next, I ran depreciation for Q2, i.e. up to June 30, 2019 for my hypothetical company. Building 1 was amortized for $1,500 again, Building 2 was amortized for $3,000 again and Building 3 was also amortized for $3,000.
Scenario #2 GL posting results
The journal entry looked like this, by asset and the overall entry was:
- DR “Depreciation” Account (000-6000-00) for $7,500 combined
- CR “Reserve” Account (000-1600-00) for $7,500 combined
Scenario #3 – Q3 & Q4 Depreciation
At this point, I didn’t feel the need to continue working quarter by quarter as the pattern would be identical to Q2. I ran the depreciation routine through to Dec 31, 2019. The buildings were each amortized for 2 quarters’ worth. In the real world, I wouldn’t be posting lump sum amortization like this but for the sake of the example, running the routine 12 times to show monthly results would be a little tedious!
Scenario #3 GL Posting result
In the end, here is my spreadsheet of the posting results by account type. Depreciation is straight-forward, when it’s not mixed in with additions or other types of changes in Fixed Assets.
Here are the Book windows for Building 1 and 2 (Building 3 is identical to Building 2 now – same acquisition date, value, depreciated to date etc.)
Next up I will be looking at retirements, with various scenarios, to illustrate how the posting flow changes depending on whether you have cash or non-cash proceeds, costs of sale and where you are in the YTD amortization routine etc.