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Fixed Asset Depreciation Method in US GAAP

Cielo I.'s Profile

Fixed asset depreciation method in U.S. GAAPAs per the company policy assets are depreciated using the straightline method and depreciated in service date. However, in the JDE system we used straightline but have two depreciation method calculation being used by the system which is "I" inception to date and "R" remaining life. Base on the policy we have different asset useful life being set-up (e.g. Computer Equipment of 36month). 1.In the US GAAP are allowed to use different calculation method of straightline? coz at the moment for different entity /companies they have different set-up, some are using the "I" and some are using the "R" method? 2. Does US GAAP specifically indicated specific depreciation calculation to be used? if yes, what is the correct depreciation method calculation to be used? 3. If one deprecition calculation was identified and we are about to correct our process, can we do it prospectively? so that whatever has been set-up in the system should not be touch any longer and apply the changes on the new acquisitions, does US GAAP allows this? 4. what's the Implication in the IFRS on this matter? Appreciate your thoughts in this matter.

Answers

Anonymous
(JDE Financials Consultant) |

Hi,

Just curious as to why different computation methods ("I" or "R") have been assigned to Straight Line assets in JDE.

For more detailed explanation on computation methods such as "I", "R" for Straight Line depreciation in JDE you referred above, please visit:

http://docs.oracle.com/cd/E16582_01/doc.91/e15107/a_undrstnd_predef_dep_meth.htm#g037ee99c9453fb39_ef90c_10a77f2c279__4220

I find computation method "R" a safer bet over method "I" and "P" as it (computation method "R") would in a way help catch-up depreciation if was missed out in any prior useful life of the asset.

Hope this helps.

Regards.

Topic Expert
Karoline Mello
Title: Director, FP&A
Company: Apollo Group
(Director, FP&A, Apollo Group) |

FASB 360-10-35-3 addresses basing deprecation calculation on the items’ useful life. Your company should have different useful life amounts set up. There isn’t a mandated useful life table set forth, but industry standards are typically no more than three years for computer equipment, per your example.

FASB requires your method by “systematic and rational” without dictating which type of method your company should use: Declining Balance, straight-line, units of production, or sum-of-the-years method. Further complicating issues is that other methods have been accepted by the IRS, but are not GAAP for producing financial statements.

The change in accounting would be prospective, not retrospective, you are correct.

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