About 125 percent reducing balance depreciation

Important

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Applies To: Microsoft Dynamics AX 2012 R3, Microsoft Dynamics AX 2012 R2, Microsoft Dynamics AX 2012 Feature Pack, Microsoft Dynamics AX 2012

When you set up a fixed asset depreciation profile and select 125% reducing balance in the Method field in the Depreciation profiles form, the depreciation of fixed assets that are assigned to this depreciation profile is by the same percentage in each depreciation period. The percentage will be calculated based on the service life of the asset. For example, if an asset has a service life of five years, the percentage will be calculated as 25% (125% / 5).

To set up 125% reducing balance depreciation, you must also select options in the Depreciation year field and the Period frequency field in the Depreciation profiles form. Depending on the selection in the Depreciation year field, the options will change in the Period frequency field.

Selection of depreciation year

You can select either Calendar or Fiscal in the Depreciation year field in the Depreciation profiles form. (Click Fixed assets > Setup > Depreciation > Depreciation profiles.) This selection defines the options that are available in the Period frequency field.

Calendar

You can keep the default value in the Depreciation year field, Calendar.

The Calendar option updates the depreciation base (typically the net book value minus the scrap value) on January 1 of each year. In the examples later in this topic, the depreciation base is the numerator in the first expression in the calculations in the calculations column.

If you select Calendar, you have the following options in the Period frequency field, which defines the depreciation accrual posting dates and amounts throughout the calendar year:

• Yearly posts an amount on December 31

• Monthly posts a monthly amount at the end of each calendar month

• Quarterly posts a quarterly amount at the end of each calendar quarter (March 31, June 30, September 30, and December 31)

• Half-Yearly posts a half-yearly amount at the calendar half year (June 30 and December 31)

• Daily posts the depreciation amount for the daily depreciation method using one transaction for each day

  Note

  (THA) This control is available only to legal entities whose primary address is in Thailand.

Fiscal

If you select Fiscal in the Depreciation year field, the 125% reducing depreciation is calculated based on the fiscal year for the fiscal calendar that is specified for the value model or depreciation book, or by the fiscal calendar that is selected in the Ledger form. Fiscal calendars are set up in the Fiscal calendars form. For more information, see About fiscal calendars, fiscal years, and periods.

For example, for the fiscal year of July 1 through June 30, the depreciation calculation starts on July 1. The fiscal year can be longer or shorter than 12 months. The depreciation automatically is adjusted for each period, and the length of the next fiscal year is from the setup of periods in the Fiscal calendars form.

When you select Fiscal as the depreciation year, the following options are available in the Period frequency field:

• Yearly posts the total amount of the depreciation calculated for the fiscal year as one amount on the last day of the fiscal year.

• Fiscal period posts the total amount of the depreciation calculated for the fiscal year, which is accrued into the fiscal periods that are defined in the Fiscal calendars form.

Example of 125% reducing balance depreciation

Acquisition cost	11,000
Salvage value	1,000
Depreciation base	10,000
Service life years	5
Yearly depreciation percentage	25%

The 125% reducing balance method will divide 125% by the service life years. That percentage will be multiplied by the net book value of the asset to determine the depreciation amount for the year.

Period	Calculation of yearly depreciation amount	Book value	Net book value at the end of the year
Year 1	(11,000 - 1,000) * 25% = 2,500	(11,000 - 2,500) = 8,500	(11,000 - 1,000 - 2,500) = 7,500
Year 2	7,500 * 25% = 1,875	(8,500 - 1,875) = 6,625	(7,500 - 1,875) = 5,625
Year 3	5,625 * 25% = 1,406.25	(6,625 - 1,406.25) = 5,218.75	(5,625 - 1,406.25) = 4,218.75

Note

When the 125% reducing balance depreciation amount becomes less than what would have occurred using the straight line method, there is generally a conversion to straight line for the remaining life.