Derogatory depreciation for France
This article provides information about derogatory depreciation and how to set it up. In derogatory depreciation, an extra amount of depreciation is calculated as the difference between the depreciation amount on the tax book and the depreciation amount on the accounting book during the life of a fixed asset.
This extra amount of depreciation is posted as the Derogatory increase transaction type on the accounting book if the depreciation amount on the tax book is higher than depreciation amount on the accounting book. Alternatively, this extra amount of depreciation is posted as the Derogatory decrease transaction type. For example, a fixed asset that has acquisition amount of EUR 1,000 is depreciated in the accounting book for five years and in the tax book for three years. In the first year, the accounting depreciation is EUR 200 (1,000 ÷ 5), and the tax depreciation is EUR 333.33 (1,000 ÷ 3). Therefore, the extra amount is EUR 133.33 ([1,000 ÷ 3] – [1,000 ÷ 5], or 333.33 – 200.00) and is posted as a derogatory increase. After the third year of the life cycle, the accounting depreciation will be EUR 200 (1,000 ÷ 5), and the tax depreciation will be 0 (zero). Therefore, the extra amount is EUR 200 (0.00 – [1,000 ÷ 5], or 0.00 – 200.00) and is posted as a derogatory decrease. To use derogatory depreciation, you first create and set up accounting and derogatory tax book, and assign them to an asset. For the derogatory tax model, you enable the Derogatory tax model field on the Books page. For the accounting model, you select the derogatory tax model in the Derogatory calculation field. The following conditions must be met:
- Both books must have the Depreciation field enabled.
- Allow negative net book value is disabled in both books.
- Both books have the same value in the Calendar field.
- Both books must have the same posting layer set to Current.
- The depreciation profile that is selected on the derogatory book must have full depreciation activated if the depreciation method is of the Reducing Balance type.
- The depreciation profiles that are selected on the both value models must have the same settings for Depreciation Year and Period Frequency.
- Both books must have the same setting in the Depreciation convention field on the Books page (Fixed assets > Fixed assets > Fixed assets > Select a fixed asset and then click Books).
- The Placed in service dates must be the same in both books as soon as the books are assigned to a specific asset.
On the Fixed asset posting profiles page, you set up general ledger accounts for Derogatory increase and Derogatory decrease transactions in the accounting book. On the Disposal parameters page, you can complete the setup to post derogatory increase amounts or derogatory decrease amounts to specific general ledger accounts during disposal. You can review the derogatory depreciation amounts for the accounting book on the Fixed asset balances page, the Fixed asset note report, or the Fixed asset movement report.