on 09-21-2010 6:03 PM
Hello all --
This post is purely regarding TAX depreciation - book is not affected by any means.
For book purposes, an asset is classified as a building. However because of special rules for tax purposes, the asset was erroneously depreciated using a MACRS 39-year life when they should have been on a shorter life (i.e. 5-year or 7-year). Said another way, the asset is classified as a building for book purposes, but it can be broken out into a 5-year life for tax purposes (through a cost segregation study).
Asset Information:
Placed In-Service Date: 8/21/2007
Acquisition Value: 55,112
Original Life: 39 years
Original Method: Straight-Line Acquisition, Mid-Month
New Life: 5 years
New Method: MACRS Half-Year Convention, DDB 200%
MACRS 5-year Percentages - 20%, 32%, 19.20%, 11.52%, 11.52%, 5.76%
I don't plan on opening prior fiscal years to make adjustments so that the old incorrect information can be preserved. My plan was to change the depreciation key and useful life in AS02 and then post unplanned tax depreciation in 2010 to get to the correct net book value at the end of 2010. Thereafter, the 2011 and 2012 depreciation and net book values should theoretically reflect the correct amounts.
The depreciation scenario tables are below:
Current - What SAP currently reflects in production
Year Ordinary Accumulated NBV
2007 529.92 529.92 54,582.08
2008 1,413.13 1,943.05 53,168.95
2009 1,413.13 3,356.18 51,755.82
2010 1,413.13 4,769.31 50,342.69
2011 1,413.13 6,182.44 48,929.56
2012 1,413.13 7,595.56 47,516.44
Correct Application - If the useful life and depreciation key were correct from the onset, this is what SAP would reflect
Year Ordinary Accumulated NBV
2007 11,022.40 11,022.40 44,089.60
2008 17,635.84 28,658.24 26,453.76
2009 10,581.50 39,239.74 15,872.26
2010 6,348.90 45,588.65 9,523.35
2011 6,348.90 51,937.55 3,174.45
2012 3,174.45 55,112.00 -
Proper Adjustment - previously posted depreciation amounts are retained
Year Ordinary Accumulated NBV
2007 529.92 529.92 54,582.08
2008 1,413.13 1,943.05 53,168.95
2009 1,413.13 3,356.18 51,755.82
Unplanned 35,883.56 39,239.74 15,872.26
2010 6,348.90 45,588.64 9,523.36
2011 6,348.90 51,937.54 3,174.46
2012 3,174.45 55,112.00 0.00
When I actually tested the scenarios, I get the following results:
When I actually tested the scenarios, the depreciation amounts for 2010 and beyond were inflated. If I only made the change to depreciation key and useful life without posting unplanned tax depreciation, I get the following result:
Actual Result - 200% DDB based on ending 2009 NBV - The depreciation that should have been taken (35,883.56) is spread over the remaining life
Year Ordinary Accumulated NBV
2007 529.92 529.92 54,582.08
2008 1,413.13 1,943.05 53,168.95
2009 1,413.13 3,356.18 51,755.82
2010 20,702.33 24,058.51 31,053.49
2011 19,109.84 43,168.35 11,943.65
2012 11,943.65 55,112.00 0.00
Actual Result with Unplanned/Special Depreciation - Tested with special depreciation booked in the middle of 2010. Result was that ordinary depreciation was ending too early, with the last year being 2010. Instead, the ordinary depreciation should have been calculated from using the MACRS percentage for that useful life year and multiplied by the original acquisition cost. Ordinary depreciation should not adjust for the catch-up depreciation. Posting unplanned depreciation in 2010 resulted in the same thing.
Year Ordinary Accumulated NBV
2007 529.92 529.92 54,582.08
2008 1,413.13 1,943.05 53,168.95
2009 1,413.13 3,356.18 51,755.82
Special Depr 35,883.56
2010 15,872.26 55,112.00 0.00
2011 - 55,112.00 0.00
2012 - 55,112.00 0.00
It seems as if the ordinary depreciation is being calculated first. After the special depreciation is applied, the system takes the remainder of the NBV since the special depreciation value was took out of the ordinary depreciation planned for 2010.
Is there some sort of configuration to avoid the depreciation being spread in the special year? I know that there's a configuration for book purposes to avoid "smoothing" the depreciation. But is there one for tax as well?
Please advise. I would be extremely grateful for anyone who could help me resolve this matter or lead me in the right direction.
Best Regards,
Kay
Please disregard - moving this question to Asset Accounting
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