Depreciation & move lines

Introduction

A fixed asset is subject to depreciation. This means that the cost of its acquisition, or its valuation, is spread over several financial years for accounting purposes.

Depreciation therefore defines the loss in value of a fixed asset of the company due to wear and tear or obsolescence.

Via depreciation allocations, the book value of the asset is reduced.

The rules applicable to depreciation allocations are set by the General Accounting Plan.

These allocations depend on the life span of the asset, as set out in the General Accounting Plan (in general, between 5 and 10 years depending on the asset). It can be calculated using linear depreciation (equal depreciation each year) or degressive depreciation (higher depreciation at the beginning of the asset's life span).

note

An accounting entry is referred to as “move” in AOS.

Derogatory depreciation

Derogatory depreciation is the difference between the fiscal depreciation used by the company (which gives it an advantage) and the accounting depreciation (recommended by the fiscal authorities).

Derogatory depreciation is recognised in the AOS in the following cases:

• The depreciation period used by the company is shorter than the one imposed by the fiscal authorities;

• The degressive depreciation method has been used when the fiscal authorities recommend the use of linear depreciation;

In both cases above, the depreciation is high, so the depreciation charge is higher, which reduces the company's reported profit and results in less tax (on profits) to pay. As a result, corrections are imposed by the government.

Please, note that exceptional depreciation is not a loss in value, but a kind of hidden subsidy. Tax depreciation does not generate accounting entries (it serves as a reference for calculating the exceptional depreciation).

Therefore, assuming that all fixed assets are depreciated on a linear basis, if the company were to depreciate them differently from what is recommended by the fiscal authorities:

• Derogatory depreciation: if Economic Depreciation (linear) < Tax Depreciation (declining balance), you will see a Derogatory Depreciation Allowance.

• Exceptional depreciation reversal: if Economic Depreciation (linear) > Tax Depreciation (declining balance), you will see an Exceptional depreciation reversal.

In addition to a depreciation entry that has been recorded, usually at the end of the year, or sometimes monthly, depending on the company, an additional entry, either an allocation or a recovery, will be generated on the depreciation line.

At the end of the asset's life, the sum of the allocations will be equal to the sum of the recoveries.

Depreciation, impairment, allocations/reversals

Generating depreciation entries: line status

Depreciation entries are controlled by the depreciation lines listed in the depreciation table, and the accounting entries generated depend on the accounts configured for the category.

A depreciation line has two different statuses:

1. Planned: a line with this status has no associated depreciation accounting entries. If the fixed asset has Draft status (acts as a ‘simulation’ with no impact). If the fixed asset has Validated status, a projection is available.

2. Realized: i.e. completed. Accounting entries have been generated, which has impacted the book value of the asset. A link to the generated entry or entries is available. To have completed lines, the asset must have the status Validated, Depreciated or Transferred (which means that a fixed asset has been disposed).

• Simulate: on the depreciation line, when the fixed asset has the status Planned, a button ‘Simulate’ allows you to simulate the depreciation, generating the depreciation entry with the status ‘Simulated’.

Generating entries, manual method

There are several ways to generate depreciation entries:

• Manual method (unit), first approach:

To create a fixed asset line, you can:

1. In the fixed asset form view in the depreciation table (economic, fiscal, or derogation or IFRS, if applicable), click on the ‘Realize’ icon (i.e.complete) at the end of the line (only if the fixed asset has the status ‘Realized’).

2. Once the depreciation has been validated, the status changes to ‘Realized’.

3. All lines in the other depreciation tables (fiscal, derogation, IFRS) with the same date will also change to ‘Realized’ status. Note that a line in one of these other tables will change to ‘Realized’.

• Manual method (unit), second approach:

To complete a fixed asset line, you can:

• Realize: on the form view of the depreciation line, click on the Realise button. Once realised, the amortization entry will be generated and, if necessary, a depreciation entry will be generated.

There are several solutions for generating depreciation entries (moves) :

Generating entries, automatic method (batch)

To realize/account all depreciation allowances in bulk, use an accounting batch.

Access: Application config → Batches → Accounting batches

1. Open the menu entry.

2. Then, in the list view, click on the + icon to access the batch launch form.

3. Realize fixed asset lines: select the action ‘Realize fixed asset lines’. In the ‘Date range for creating fixed asset lines’ tab, enter a start date and an end date. Then, click on the ‘Realize fixed asset batch lines’ button. It will trigger the same actions as when manually changing all lines to ‘Realize’ status. These lines are :

• Fixed assets with the ‘Validated’ status;

• A line that has a depreciation line with a depreciation date that is within the batch date range.

tip

Depreciation entries can be viewed on the depreciation lines with the status ‘Realized’ in the fixed asset records (except Fixed assets in progress).

Exceptional depreciation entry

In this example of an exceptional depreciation entry (move), industrial equipment was acquired on 15/06/2022 with a gross value of £35,000 and was depreciated for accounting purposes using linear depreciation over 5 years (remember to uncheck the ‘Is equal to fiscal depreciation’ checkbox), but the company wishes to benefit from a tax advantage that allows the asset to be depreciated using a declining balance method over 3 years (remember to uncheck the ‘Is equal to fiscal depreciation’ checkbox).

For the first 2 years, there is an exempt allocation, as the declining balance tax depreciation is higher than the linear accounting depreciation that is usually applied. When the linear accounting depreciation is higher than the declining balance depreciation, a special reversal is applied.

The exceptional reversal entries can be viewed on the exceptional depreciation lines of the fixed asset records.

A practical example

Access: Accounting → Fixed assets → Fixed assets

In the example, a fixed asset record has been created for industrial equipment.

The following information has been entered:

1. Gross value: £35,000.

2. Acquisition date: 15/06/2022.

3. Date of first use: 15/06/2022.

4. Fiscal information: declining balance depreciation over 3 years. The first depreciation has already been carried out by a batch. In this example, you will not find any accounting entries.

5. Depreciation information: the ‘Is equal to fiscal depreciation’ box has been unchecked. Here, depreciation is linear over 5 years. The first depreciation has already been carried out by a batch. In this example, you will find a depreciation allocation entry.

6. Derogation information: here you will find the ‘Depreciation board’. For example, in this table you can see that a derogation allocation has been made. Fiscal depreciation can end in 2025, and until 2027 there is still economic depreciation (which should be treated as a derogation reversal). Here you will find an exceptional depreciation entry.

tip

If you click on the asset category, you will be able to view the associated accounts.

The accounting entries are generated using these accounts.

7. Realize: if you want to execute a depreciation line (for example, a line in the Depreciation board in the Depreciation information tab), click on a line with the status ‘Planned’ to change it to ‘Realized’. You can also execute lines in the Derogatory tab in the ‘Fiscal fixed asset line list’ table. An entry will then be generated.

caution

Please note that in order to complete a line, you must comply with the depreciation deadlines.

Depreciation entry

Access: Accounting → Fixed assets → Fixed assets

In this example of a depreciation entry, you have a vehicle with a gross value of £20,000 that will be depreciated by the company on a linear basis over 5 years (remember to uncheck the ‘Is equal to fiscal depreciation’ checkbox if the fixed asset is subject to significant risks of depreciation). A depreciation is recognised in 2023 at £11,000 instead of £14,000.

Depreciation entries are generated when the line containing a Revalued NPV and a value in the depreciation column (here 3,000 in the example; if negative, it will be a reversal) is completed.

The impairment entries are linked to a change in the net book value (NBV).

1. Modify depreciation parameters: in AOS, to record a depreciation, the ‘Modify depreciation parameters’ button allows you to revise the NBV in edit mode (make sure you open the form in edit mode to perform this action; otherwise, the button will not appear).

2. Depreciation update settings: this tab will appear after clicking on the ‘Modify depreciation settings’ button. Here, you can enter the revalued NBL and the number of depreciation periods.

3. Confirm update: once you have entered the revalued VNC, you can click on ‘Confirm update’.