Depreciation Keys?
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Answer Posted / geevidhyadhar
You are aware that every fixed asset keeps losing value as
time progresses and the loss of value is called as depreciation.
Depreciation Keys are pre-defined mathematical functions
which perform number crunching so as to reduce the value of
asset (usually) with the passage of time.
A Depreciation Key is a bundle of various methods of
standardized depreciation. A depreciation key contains
a. Base method (such as straight line depreciation etc.)
b. Declining Balance Method ( more affectionately known as
WDV method, Written Down Value Method)
c. Maximum Amount Method ( an arbitrary pre-defined amount
up to which depreciation of an asset can be carried out)
d. Multi-level method ( which is a mixed bag of one or more
of the aforesaid methods ) . Usually it has been
mathematically proved that the Declining Balance Method
cannot be effective in writing off the value of an asset in
full ( viz. reduce to zero balance) in a finite period of
time. In order to avoid this complication, you can use
multi-level method which effects a change-over from
declining balance method to straight line method under
certain conditions pre-defined in the depreciation methods/
keys)
e. Period Control Method ( this tells you the date on which
capitalization / de-activation, start of depreciation could
commence with regard to asset acquisition, additions to it,
retirement and transfer ).
All these depreciation methods are bundled into a
depreciation key which is assigned to the asset master record.
There are many depreciation keys available and you can
create them too. Usually they are country-specific.
Assignment of a suitable depreciation key to the asset
master helps in the fair valuation of assets and profits /
losses ( through fair estimation of depreciation of assets).
Hope it is clear. Please feel free to share with any other
information that I might have missed out
Regards
geevidhyadhar
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