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Depreciation is a method of allocating the cost of a fixed asset over its estimated useful life. Governmental and proprietary fund types need to be depreciated.

ITMSCN - LTD Depreciation Information

In order to track depreciation with the EIS system, the depreciation information on screen 2 of ITMSCN must be complete. This includes:

Depreciation Field

Explanation

Depreciation Method

This field must have one of the following values: N for No depreciation; S for Straight line depreciation (The normal method used by schools.); D for Declining balance depreciation

Depreciation Factor

Used only for the declining balance method. This method involves an accelerated depreciation for the beginning years. It is not normally used by schools

Depreciation Beginning Date

Date to begin calculating depreciation. Usually this is the same as the Acquisition Date.

Original Cost

This field must have the value which is to be depreciated

Life Expectancy

Used to determine the number of years the item is to be depreciated. This is usually entered by the appraisal or insurance firm.

Salvage Value

Estimated value at the end of the item's useful life or the anticipated trade-in value

LTD Depreciation

This field is normally calculated by the software. It contains the total depreciation from the depr. beginning date up through June 30 of  the last fiscal year closed.

Life-to-Date Depreciation Calculation

The life-to-date (LTD) depreciation field always equals the total depreciation for the item through June of the last fiscal year that has been closed. So, at Jan. 1, 2011, the LTD depreciation for an asset would be from the beginning date of depreciation through June 30, 2010 (assuming the last fiscal year closed is 2010). Running the fiscal year closing program (EISCLS) will update the LTD depreciation by one year.

Depreciation is actually tracked monthly in the EIS system. The depreciation beginning date is entered as a month and year to begin depreciating the item. The first year, the depreciation posted to the LTD depreciation field will be the annual depreciation amount pro-rated based on the number of months the item is actually being depreciated. So, for example, if an item has a depreciation beginning month of January, only one-half (6 months worth) of the annual depreciation amount will be posted to the LTD depreciation. In subsequent years, the entire annual depreciation amount will be posted to the LTD depreciation field.

When you run the book value report during the fiscal year, the depreciation reported is the LTD depreciation plus depreciation for the current fiscal year. The depreciation for the current fiscal year is calculated on a monthly basis as the report is generated.

Depreciation Methods

The depreciation method must be entered for each item on the equipment inventory system. The methods available in the Equipment Inventory System (EIS) are: N = None, S = Straight-Line, or D = Declining-Balance. However, since only straight line depreciation is used for school districts only this method will be discussed.

Straight-Line Method

The depreciation method most commonly used is the straight-line method, in which the cost, minus estimated salvage value is spread proportionally over the estimated life of the asset. The basic formula for computing straight-line depreciation is as follows:


     Original Cost - Salvage Value      =         10,000 - 0.00        =   2000.00

          Estimated Useful Life                                5

This illustrates that an item of equipment acquired for $10,000 with an estimated useful life of 5 years and an estimated salvage value of $0, would have an annual depreciation of $2000 computed as follows:

($10,000 - $0) divided by 5 = $2000.

A depreciation schedule is illustrated in the next table:

HTML Table
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width75%
Table Row (tr)
Table Head (th)
Year
Table Head (th)
Cost
Table Head (th)
Accumulated Depreciation at Beginning of Year
Table Head (th)
Book Value at Beginning of Year
Table Head (th)
Depreciation for Year
Table Head (th)
Book Value at End of Year
Table Row (tr)
Table Cell (td)

1

Table Cell (td)

$10,000

Table Cell (td)

Table Cell (td)

$10,000

Table Cell (td)

$1,800

Table Cell (td)

$8,200

Table Row (tr)
Table Cell (td)

2

Table Cell (td)

10,000

Table Cell (td)

$1,800

Table Cell (td)

8,200

Table Cell (td)

1,800

Table Cell (td)

6,400

Table Row (tr)
Table Cell (td)

3

Table Cell (td)

10,000

Table Cell (td)

3,600

Table Cell (td)

6,400

Table Cell (td)

1,800

Table Cell (td)

4,600

Table Row (tr)
Table Cell (td)

4

Table Cell (td)

10,000

Table Cell (td)

5,400

Table Cell (td)

4,600

Table Cell (td)

1,800

Table Cell (td)

2,800

Table Row (tr)
Table Cell (td)

5

Table Cell (td)

10,000

Table Cell (td)

7,200

Table Cell (td)

2,800

Table Cell (td)

1,800

Table Cell (td)

1,000

Table Row (tr)
Table Cell (td)

6

Table Cell (td)

10,000

Table Cell (td)

9,000

Table Cell (td)

1,000

Table Cell (td)


Table Cell (td)

1,000

The EISDEPR Program

The EISDEPR program is a "fix" type of program that will re-calculate the LTD depreciation field from scratch. This program should generally be run after making changes to the depreciation information for existing items. This usually occurs when a district is cleaning up their files after an initial appraisal or in preparation for GAAP reporting. Once a district is actively tracking depreciation, this program should only be used with extreme caution. It is recommended that you always contact your system manager before using this program.

What the EISDEPR program does is to calculate the life-to-date depreciation for all items completely from scratch. It does NOT CALCULATE THE DEPRECIATION FOR THE CURRENT FISCAL YEAR. Only items whose life-to-date depreciation has been changed by the program will be included on the report; thus if no changes to the depreciation information have occurred, no report will be created.

EISDEPR has a projection option that will calculate the new LTD depreciation but not change the Note that you can calculate the LTD depreciation on paper and manually enter it into the LTD field by using the Modify option.

EISCHG - Mass Change to Full Depreciation Option

The EISCHG program also has an option to mass change to full depreciation. This option will update many of the depreciation fields on the item records as well as calculate the life to date depreciation for the items. EISCHG is discussed in detail in the next chapter of this training guide.