Building up an asset's value over time (tutorial)

Additions can be added at any time for an asset. While most assets are likely to be relatively stable, you may encounter situations where an asset is built up from period to period through the year. This tutorial looks at a software project which has its capital value increased from period to period.

 

Open the tutorial database Learn how.

 
image\bm1.gif This tutorial uses the List assets window.  To open the List assets window either click the List assets command on the Assets menu or press CTRL-L.

 

 

Step 1: Entering multiple additions

 

Open the List assets  window and type 'Soft' in the Search key field to select the PRODSOFTWA asset. The asset has a year opening value of $0.00:

 

image\bm81.gif

 

This asset is to have $1,000 added to it each period, from period 6 to period 12.

 

Click on the Transactions tab, (the Additions sub-tab should already be selected) and click the Add button to enter the first addition. Select a date in period 6 and enter $1000 in the Value field, then click OK. Repeat this process for periods 7 to 12 until you have seven transactions, each for $1000.00. The revaluation checkbox should be empty for each one.

 

Each addition transaction will show up in the Addition details list, You'll need to scroll up & down in the list to see all the additions.

 

image\bm82.gif

 

 

Step 2: Setting the depreciation rate

 

The (NZ)  Inland Revenue Depreciation Guide sets out a depreciation rate of 36% for software projects. This asset needs to have its depreciation corrected to match.

 

To set the depreciation rate for the tax ledger click on the Details tab, and then click Edit to bring up the Asset Details maintenance window.

In the Rate and Method Tab click change and set the depreciation method to straight line, and enter a depreciation rate of 36%.

In the Opening values, set Purchase value to $5000.00 and the revaluations to $0.00. Set the Purchase date to 16/06/2007.

bm83a.gif

 

image\bm83.gif

 

Step 3: Viewing the asset's depreciation

 

To view the depreciation values for the asset, click the Depreciation tab.

 

Now click on the Period buttons, one at a time, starting from period 1. You will see that all depreciation figures are zero until you click the period 3 button. This is because the asset wasn't purchased until period 3. (if you changed the purchase date to June 2007)

 

As you move through the periods, you can see the increase in value of the asset, and also the increase in the depreciation expense. The depreciation is calculated from the value at the year to date, weighted with the number of months of each addition: the initial $5,000 acquisition at 36% shows as $150.00 per period, and each subsequent $1,000 addition adds another $30.00 per period.

 

The Depreciation YTD increases by $150.00 from periods 3 to 5, and then by $180.00 in period 6 ($150.00 + $30.00 from the first addition) and then by $210.00 in period 7 ($150.00 + $60.00 from the first and second additions). This pattern continues through the rest of the year.

 

image\bm1.gif  As an extra exercise you may wish to set the depreciation method to diminishing value and the depreciation rate to 48%, and see the effect on the figures.

 

 

What next?

 

 This tutorial has shown how to use additions to record repeated increases in an asset's value over time. The next tutorial section, Revaluing an asset, shows how to enter a revaluation addition to record a change in an asset's value.

 

 

See also

Asset transactions tutorials