ORACLE APPLICATIONS

WHITE PAPER
Depreciation

Product Design and Architecture

Contributors

Name

Position

Nancy A. Lanning

Sr. Technical Analyst, Fixed Assets Support, Orlando

Change Record

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Depreciation.doc

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Change Reference

Contents

INTRODUCTION ................................................................................................................................... 1
Objective........................................................................................................................................ 1
Scope ............................................................................................................................................. 1
Background.................................................................................................................................... 1
THE BIG PICTURE................................................................................................................................ 2
HOW DOES DEPRECIATION WORK?....................................................................................................... 3
Depreciation Calendar................................................................................................................... 3
Prorate Calendar ........................................................................................................................... 3
Prorate Conventions ...................................................................................................................... 3
Depreciate when placed in service flag .......................................................................................... 4
Depreciation Methods .................................................................................................................... 4
Depreciate Flag ............................................................................................................................. 5
Date placed in service.................................................................................................................... 5
Divide Depreciation Flag............................................................................................................... 5
Submitting Depreciation................................................................................................................. 6
BEHIND THE SCENES ........................................................................................................................... 8
RESERVE ADJUSTMENTS ...................................................................................................................... 9
MASS DEPRECIATION ADJUSTMENTS.................................................................................................. 10
UNPLANNED DEPRECIATION .............................................................................................................. 11
DEPRECIATION PROJECTION .............................................................................................................. 12
WHAT-IF ANALYSIS .......................................................................................................................... 13
INFORMATION SOURCES .................................................................................................................... 14

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Introduction

Objective

To provide an overview of the Depreciation Process in Fixed Assets with

the hopes of giving the reader a well rounded understanding of
depreciation.

Scope

This paper will cover the functional and technical side of Depreciation. It
will describe how your setup affects depreciation. An overview on how
depreciation is calculated will be explained with a behind the scenes look of
what really happens. It will briefly touch on how to make adjustments and
some depreciation tools that will help in running the program.

Background

The dictionary gives us 3 definitions of Depreciation:

1. A decrease or loss in value, as because of age, wear, or market
conditions.
2. Accounting. An allowance made for a loss in value of property.
3. Reduction in the purchasing value of money.
These are all correct, but what it basically boils down to is the process of
allocating the cost of an asset over the life of that asset. In the United
States, The Internal Revenue Service (IRS) determines the lives that apply
to an asset category.

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Introduction
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The Big Picture

Data can come into Oracle Assets via the FA_MASS_ADDITIONS table
from the following sources: external sources (i.e. legacy systems), Project
Accounting (PA), Accounts Payable (AP) and indirectly from Purchasing
(PO). Once the data is posted in Oracle Assets, it is then considered to be
a true asset. If an asset is setup as a capitalized asset, it can be depreciated.
When Depreciation has ran successfully and the period has closed, you can
then submit the Create Journal Entries program (FAPOST). The Create
Journal Entries program creates the journals for General Ledger (GL) and
inserts that data directly into the GL tables, GL_JE_HEADERS,
GL_JE_BATCHES, and GL_JE_LINES. Therefore, no journal import
from within GL is necessary. If the Create Journals program was
successful, the unposted journals can be viewed immediately in GL.

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The Big Picture

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How does Depreciation Work?

When initially implementing Fixed Assets, many of the steps that you take
in the setup directly impacts depreciation. Here are just a few of these
items.

Depreciation Calendar
The depreciation calendar determines the number of accounting periods in
a fiscal year. You can use one calendar for multiple depreciation books
and as both the depreciation and prorate calendar for a book.
Note: The period names in your depreciation calendar must match the
period names in your GL calendar. If you are using an adjusting period in
your GL calendar, you do not define the adjusting period in your FA
calendar.
Navigation:
SetupAsset SystemCalendars
SetupAsset SystemBook Controls

Prorate Calendar
The prorate calendar determines the number of prorate periods in your
fiscal year. The depreciation program uses the prorate calendar to
determine prorate period, which is used to determine the annual
depreciation amount. After setting up the prorate calendar, you specify the
prorate calendar for each book on the Book Controls form.
Navigation:
SetupAsset SystemCalendars
SetupAsset SystemBook Controls

Prorate Conventions
The prorate convention determines how much depreciation to take in the
first and last year of an asset's life based on when you place the asset in
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service. Your tax department chooses the prorate convention. The prorate
calendar and convention must be setup before adding the assets. If you
retire an asset before it is fully reserved, the retirement convention
determines how much depreciation to take in the period of retirement. The
prorate convention, the retirement convention and the depreciation method
work together to determine the depreciation for the first and last year of an
asset's life. After setting up the prorate convention, you specify the prorate
convention for each asset on the Books form and the retirement convention
on the Retirements form in Asset Workbench. See the white paper - The
Wonderful World of Prorate Conventions, located on MetaLink, for more
details.
Navigation:
Setting up prorate convention SetupAsset SystemProrate Conventions
Assigning prorate and retirement conventions to assets Asset workbench Find/Select Asset Books Enter book name and
tab down.
Asset workbench Find/Select Asset RetirementsEnter book name
and tab down.

Depreciate when placed in service flag

Designates whether to start taking depreciation in the accounting period
that corresponds to the date placed in service or to start taking
depreciation in the accounting period that corresponds to the prorate date.
Navigation:
SetupAsset SystemProrate Conventions

Depreciation Methods
A life based method or calculated method will spread the depreciation out
over the fixed life of the asset. It uses the asset's cost or NBV, salvage
value, date placed in service, prorate convention, depreciation method and
life to calculate depreciation.
If the asset uses a flat rate method, it will calculate depreciation based on a
fixed rate using the cost or the NBV. This basic rate plus the adjusted rate
make up the adjusted rate, which is used as the fixed rate.
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Table based methods use the prorate period and the rate tables.
Units of Production depreciation method bases depreciation only on how
much you use that asset. It divides the production for the period by the
capacity and multiplies that value by the recoverable cost to calculate the
expense for the period.
In Release 11I, formula based depreciation is available.
When defining your methods, you specify your calculation basis. For costbased depreciation methods, this is cost-salvage value. For NBV based
depreciation methods, this is cost-accumulated depreciation (reserve).
Navigation:
SetupDepreciationMethods

Depreciate Flag
Designates whether or not to depreciate an asset.
Navigation:
Asset workbench Find/Select Asset Books

Date placed in service

The calendar date when you start using an asset.
Navigation:
Asset workbench Find/Select Asset Books

Divide Depreciation Flag

The method for dividing the annual depreciation amount over the periods
in you fiscal year for this book. The value of Evenly divides depreciation
evenly for each period and the value By Days divides it proportionally
based on the number of days in each period.
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SetupAsset SystemBook Controls

The depreciation program uses the depreciation rate, your depreciable basis
(calculation basis) and the prorate calendar to calculate the current year
depreciation. In tax books, this could be limited by a cost ceiling. Then the
current period's depreciation is calculated. In tax books, this could be
limited by a cost ceiling or an expense ceiling.
For the first period of the asset's life, it will use the depreciation
calendar, prorate calendar, depreciation start date and current year
depreciation.
For the last period of the asset's life, it will use recoverable costaccumulated depreciation.
For the last period of the fiscal year, it will use the current year
depreciation-year to date depreciation.
For other periods, it will use the depreciation calendar and the current
year depreciation.
If an asset has a depreciation ceiling associated with it, the calculated
depreciation amount could be limited by the depreciation-ceiling amount.
It then allocates that periodic expense to the assignments of the asset. This
is determined by the fraction of the asset unit that is assigned to each
depreciation expense account. Accumulated depreciation (reserve) and
year to date (YTD) depreciation is also updated.

Submitting Depreciation
Release 10.7 and 11:
At the end of your accounting period, you will submit the depreciation
program for each of your books.
Navigation: Depreciation Run
Enter the book name and the current open period will default in.
This submits a request set, which includes the following programs:
Generate Accounts - FAGDA - (Release 11) - generates 16 possible
account combinations for each new asset added to your system. It
populates the FA_DISTRIBUTION_ACCOUNTS table. This program
was a new performance enhancement in release 11 so that workflow does
not have to be called each time, an account code combination is needed.

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 Calculate Gains and Losses - FARET - Calculates the gains and losses
for pending retirements and reinstatements and performs catch up
depreciation for retirements and reinstatements.
Depreciation - FADEPR - Calculates depreciation expense and
adjustments for the period and closes the period. Accumulated
depreciation and year to date depreciation is updated. If depreciation is
being run for the last period of the fiscal year, it will check to see if the
next fiscal year, prorate and depreciation calendars are defined and if not,
it will define them for you.
Journal Entry Reserve Ledger report FAS400 Shows how much
depreciation expense was charged to a depreciation expense account for
any accounting period.
If depreciation encounters an error, the program will fail at that point and
rollback any depreciation that was committed.
Release 11i:
In Release 11i, the run depreciation and close periods have been broken
out to separate processes. If the profile option, Deprn Single is set to Yes,
it will process all the assets and display all of the errored assets in the
logfile.
Navigation:
Signon as System Administrator
ProfileSystemIn profile box, enter FA%, and click on Find.
This way you can fix all of your errors in one pass, resubmit depreciation
and only the corrected assets will process. If you are not satisfied with the
depreciation figures or missed some transactions in the period, you have
the option to rollback/"undo" depreciation which will allow you to add
assets, post transactions, adjustments, etc. The close period option is
determined by a checkbox on the submit depreciation form. When you
are ready to close the period, you can check the close period box and rerun Depreciation to close the period

Tip on Running Depreciation: To speed up performance of your

depreciation run, run the Calculate Gains and Losses and the Generate
Accounts programs periodically throughout the period.

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Behind the Scenes

The two major functions in the FADEPR program are FADCJE, the cost journal
entries program and FADDEP, the depreciation module.
FADCJE is called at the beginning of the depreciation program. It processes all
newly added assets and clears their cost in the FA_ADJUSTMENTS table. After
it completes, FADDEP is called. FADDEP calculates depreciation expense for
each asset and allocates it to each of the asset's distributions.

Tables that are updated when running depreciation:

FA_ADJUSTMENTS - for each distribution line, there will be cost and
cost clearing rows for the addition, and a depreciation expense row for any
catch up depreciation.
FA_DEPRN_SUMMARY - A 'DEPRN' (D) row is inserted to reflect the
current month's depreciation expense, year to date depreciation expense,
and total depreciation reserve (accumulated depreciation)
FA_DEPRN_DETAIL - A 'D' row for each distribution line is inserted
FA_DEPRN_PERIODS - Updating the current periods row with a
PERIOD_CLOSE_DATE closes the current period, and a new row is
inserted for the next period
FA_BOOK_CONTROLS - Updates deprn_status, last_period_counter,
last_deprn_run_date, deprn_request_id, deprn_status, current_fiscal_year

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Reserve Adjustments
In your tax books, you can adjust your reserve (accumulated depreciation) for
an asset in its prior fiscal years. The reserve adjustment will adjust
depreciation for the year and all subsequent years.
Navigation:
TaxTax WorkbenchFind/select assetReserve Adjustments

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Reserve Adjustments
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Mass Depreciation Adjustments

Mass Depreciation Adjustments allows you to adjust the depreciation
expense taken for all the assets in a tax book.
Navigation:
TaxMass Depreciation Adjustments

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Unplanned Depreciation
Unplanned depreciation is a feature in Fixed Assets to handle unusual
accounting situations in which you need to adjust Net Book Value and reserve
for an asset without affecting cost. You can enter unplanned depreciation by
asset and by book for any current period during the life of an asset in either
your tax or your Corporate book.
Unplanned depreciation updates the year to date, life to date and net book
value of an asset.
In release 10.7 and 11, you cannot enter unplanned depreciation for an asset in
the period of addition. This restriction has been lifted in release 11i.
Also, in release 10.7 and 11, you were only allowed to enter unplanned
depreciation for assets that used the Straightline depreciation method. Release
11I, now allows you to enter unplanned depreciation for flat methods, unit of
production method as well as Straightline.
Navigation:
Asset workbenchFind/select assetBooksEnter book and tab down
click on unplanned depreciation button

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Depreciation Projection
Oracle Assets provides you with a depreciation projection program and report
that will estimate actual depreciation expense. You can project depreciation
for any number of periods across any of your depreciation books. Keep in
mind, whatever period you are projecting for, must be defined in your calendar.
Navigation:
DepreciationProjections

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What-If Analysis
(available in release 11 and forward)
What-If depreciation analysis allows you to forecast depreciation for a group
of assets in different scenarios without changing your data. You can enter
your different combinations of parameters in Oracle Assets or in Report
Exchange (ADI). The report itself can only be ran in Report Exchange.
Navigation:
DepreciationWhat-If Analysis

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Information Sources
Information from this paper came from the following sources:

Brown Bag Presentation - Depreciation in Oracle Assets by Halim Hafid

Brown Bag Presentation - Adjusting Depreciation by Steve Breland
White Paper - Transaction Approval by Brad Ridgway
White Paper - The Wonderful World of Prorate Conventions by Eileen
Wexler
Oracle Assets Reference Manual, Release 10
Oracle Assets Users Guide, Release 11
Oracle Assets Release 11I, New Features

White paper
Depreciation.doc

Information Sources
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