Visual Cash Focus - User Tip 40
Depreciation – Straight Line or Diminishing Value
How to change the default calculation methodology from Straight Line
to Diminishing Value or from Diminishing Value to Straight Line
The Scenario
When entering opening balances, I have entered the assets at cost and the
credit balances for accumulated deprecation in separate accounts as per the
ledger.
I have just checked the calculated deprecation figures and they were higher
than expected. It appears that deprecation is calculating on the cost of the
assets (i.e. opening balances), however I would like the calculation to be
based on diminishing value (i.e. cost less opening accumulated depreciation).
Should the opening balance of assets be entered as book value or is there a
way that I can get VCF to calculate deprecation based on diminishing value?
Suggested Solution – Setting up Depreciation
The software provides for two methods for calculating depreciation Straight Line and
Diminishing Value. Other methods based on units and hours etc are available but
require the use of the Excel links.
The VCF default option is the Straight Line calculation method based on the Opening
Balance Sheet amount which is the scenario here.
Diminishing Value
To change to Diminishing Value two adjustments are required.
Go to Accounts & Budgets, Fixed Assets and select the asset account.
1. Under Account properties enter the Accumulated Depreciation into the
‘adjustment” box as shown. VCF will now use the shaded net figure for the
Depreciation calculation.
In the following illustration the Opening Balance sheet amount is $100,000 and
the Accumulated Depreciation is $39,000.
Depreciation is calculated on the NET figure of $61,000
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2. In the “Budget per Period” window put a single tick along side period 12. This
tells VCF when to calculate a new opening balance for the depreciation
calculation i.e. tick period 12 for annual DV, for monthly DV tick all boxes.
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Straight Line
To change to Straight Line two adjustments are required.
Go to Accounts & Budgets, Fixed Assets and select the asset account.
1. Under Account properties or the Opening Balance Sheet the historical cost for
the asset. Do not enter a depreciation adjustment.
VCF will now use the shaded net figure for the Depreciation calculation.
2. In the “Budget per Period” window remove all ticks. This tells VCF to base the
depreciation expense calculation on the opening balance sheet amount.
3.
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