Derived books
The purpose of derived books is to simplify the posting of fixed asset book transactions that are planned for regular intervals. You can choose one book as the primary book, which is usually the one used for accounting depreciation. You can then attach to it other books that are set up to post transactions in the same intervals as the primary book. Tax depreciation books are often set up as derived books.
The most common transactions you can set up to post to derived books are acquisitions, acquisition adjustments, and disposals.
Books that are set up to post transactions at intervals other than the primary book intervals must be attached to the fixed asset as separate books and not as derived books.
Example
Book B and book C are set up as derived books for book A for the Acquisition transaction type. In book A, you enter an acquisition transaction for asset 123 for 1,500.00.
When the transaction is posted, an acquisition transaction for 1,500.00 is generated and posted in asset 123 for book B and in book C. When you prepare the primary book transactions for posting in the fixed asset journal, you can also view and modify the transactions of the derived books. If you prepare the primary book transactions in another journal, the transactions of the derived value are not displayed. However, they are posted to the appropriate accounts and posting layers when you post the primary book transactions.
Depreciation profiles
Depreciation profiles are used to define rules for calculating depreciation. For depreciable assets, you need to create profiles. This usually refers to tangible assets, but intangible assets can also use depreciation profiles.
Financial assets, such as shares of stocks or bonds, are considered non-depreciable. Therefore, depreciation profiles are not required for these assets.
The following methods are available for depreciation calculation:
- Straight line service life
- Reducing balance
- Manual
- Factor
- Consumption
- Straight line life remaining
- 200% reducing balance
- 175% reducing balance
- 150% reducing balance
- 125% reducing balance
For depreciation calculations, most companies use one or more of the straight-line methods, one or more of the reducing balance methods, or the manual method. Regardless of the method that is used, the rationale for all methods is to allocate or accrue the depreciable value of the asset into accounting periods.
The depreciable value of the asset is the acquisition price reduced by a scrap value, if any. You can create many depreciation profiles with the same depreciation method for different calculations.
Watch this video to learn about the depreciation profiles and books and how to create depreciation profiles:
Post with derived books
When you post transactions for a book that contains derived books, the derived book transactions are posted automatically in journals, purchase orders, or free text invoices. However, if you prepare the primary book transactions in the Fixed assets journal, you can view and modify the amounts of the derived transactions before you post them.
Certain accounts, such as sales tax and customer or vendor accounts, are updated only once by postings of the primary book. The derived book transactions are posted to the accounts that have been defined for the derived book in the Fixed asset posting profiles page.
Acquisition is often used as the transaction type for the derived books. You can use this when the book and the derived book should be applied to the fixed asset from the time of the fixed asset acquisition.
Other values for the transaction type can also apply. For example, if the primary book and the derived books have the same intervals regarding sale or disposal, all fixed asset transaction types are available for the setup of a derived book.
Depreciation posted in the derived book will be the same amount as was posted for the primary book. If the depreciation methods are different between the books, you should not generate depreciation transactions by using the derived process. The books can then be attached to specific fixed assets.
Post fixed asset transactions to posting layers
A fixed asset is often depreciated in different ways for different purposes. Depreciation for tax purposes is calculated by using current tax rules to achieve the highest possible depreciation before taxes, but depreciation for reporting purposes is calculated according to accounting laws and standards. The various kinds of depreciation are calculated and recorded separately in the posting layers.
Each book that is attached to a fixed asset is set up for a particular posting layer that has an overall depreciation objective. The ten posting layers are: Current, Operations, Tax, and seven Custom layers. You can also disable posting to the general ledger for the book by setting the Post to general ledger field to No. The Posting layer field is then automatically set to None. Typically, books that don't post to the general ledger are used for tax reporting purposes. This approach gives you the additional flexibility to delete historical transactions for the asset book because they haven't been committed to the general ledger.
Fixed asset journals are defined by using the Journal names page at General ledger > Journal setup > Journal names. Each journal in which you can post depreciations is defined by its journal name for only one posting layer. The posting layer in the journal can't be changed. This restriction helps guarantee that transactions for each posting layer are kept separate. At least one journal name must be created for each posting layer. If you're using books that don't post to the general ledger, you must also create a journal where the posting layer is set to None.
You can designate ledger accounts for fixed asset transactions on the Fixed asset posting profiles page. For each posting profile, you must select the relevant transaction type and book, and then designate the ledger accounts. Set up a posting profile record for each book that will post to the general ledger.
By using derived books, you can post transactions to different posting layers at the same time. You can create the transactions of the primary book in a journal where the posting layer corresponds to the book posting layer. During posting, the derived book transactions are posted to the appropriate posting layers.
Fixed asset mass update
If you use books, you can change the depreciation conventions for groups of assets that are part of the same book.
For example, if you are in the United States, and you put more than 40 percent of your assets in service during the fourth quarter of the year, you must use the mid-quarter depreciation convention. You can use the process for a mass update to change all assets that require the new depreciation convention.
When updating the depreciation convention for assets, you delete all depreciation transactions that exist for those assets. You also delete all transactions for depreciation adjustments, transactions for bonus depreciation, and transactions for extraordinary depreciation for those assets.
To update the depreciation convention for assets that have already been disposed of, you should first delete the existing disposal transactions. You should also delete all transactions that were generated because of the disposal process.
After updating the depreciation convention for assets, you can process depreciation and extraordinary depreciation for each asset. You can also make manual depreciation adjustments, if any adjustments are required.
Watch this video to learn about the books, how to add depreciation profiles, and how to associate books to a fixed asset group: