1. Accounting
  2. Fixed Assets Management
  3. Setting Up the Fixed Assets Management System
  4. Depreciation Methods
  5. French Derogatory Depreciation

French Derogatory Depreciation

Derogatory depreciation is calculated from the difference between the tax and the accounting depreciation amount for the duration of the asset life. You can review the depreciation amount on the Review Derogatory Depreciation page. When the depreciation amount is finalized, the system will generate the Derogatory Depreciation Histories. The derogatory depreciation journals will also be recorded for the difference between the Accounting and the Derogatory tax method.

Setting Up and Using the French Derogatory Depreciation Method

To set up your account to use the derogatory depreciation method, take note of the following prerequisites:

  • Depreciation profiles for both the accounting and tax value models must have the same period frequency.

  • The Depreciation Start Date for both Accounting and Tax Methods must be the same.

Note:

Derogatory depreciation is not available for mid-life assets.

Reviewing Derogatory Depreciation

Important:

You must run the precompute process to generate depreciation values for the derogatory depreciation.

You can review the derogatory depreciation amount from the Review Derogatory Depreciation page. This page displays information about the tax method of the asset and the precomputed derogatory depreciation values based on the tax method.

To review the derogatory depreciation amount:

  1. Go to Fixed Assets > Lists > Assets.

  2. From the FAM Asset List page, click View or Edit next to the Asset record that you want to review.

  3. On the Asset Record page, click the Depreciation Histories subtab on the Asset record page, and then click the Derogatory Depreciation link.

    Note:

    The Derogatory Depreciation link will be available only if the asset is new.

  4. On the Review Derogatory Depreciation page, you can compare the difference between the derogatory tax method and accounting method. The Depreciation Amount sublist shows the depreciation date, tax amount, asset amount, and the difference of the tax and accounting method.

    Showing the difference between the derogatory tax method and accounting method

  5. Make sure that you have set the values for the following accounts:

    • Appropriations to Derogation Provisions Account

    • Derogation Provisions Written Back Account

    • Derogation Provisions Account

    These accounts will be used to record the derogatory depreciation amount. The derogatory histories cannot be created if these accounts have not been set up. You can set up these accounts in the Default Alternate Method of the Asset Type or in the Accounts tab of the Tax Method.

  6. Click Generate Derogatory DHRs.

    You will be redirected to the Process Status page where you can view the status of the Generate Derogatory DHRs process.

    The derogatory journal entry is created together with the regular depreciation entries during asset depreciation. The journal entries are summarized based on the option specified in the Summarize By preference in the FAM System Setup page.

    The journal entry is linked to the Derogatory Depreciation DHR. When the depreciation is completed, you should have two journal entries:

    • Regular depreciation – This entry is linked to the depreciation DHR for the accounting method.

    • Derogatory journal – This entry is linked to the derogatory DHR for the tax method.

    Derogatory depreciation histories

Related Topics

General Notices