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Depreciation and Amortisation

Posted on April 15th, 2008 by Sanjit Anand |Print This Post Print This Post |Email This Post Email This Post

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Amortization and depreciation are two words that are often used synonymously. Is different or similar. How?

Deprecaition is the reduction in the value of a company's physical assets-building, plant, cars,machines, pc that must be applied against Operating profit as a non cash expense as the goods are used.

Amortisation is a similar Charge related to intangible aseets like patents as well as loans and capital leases, and there associated intrested. Both are a burden to compnies because they lower net earning and earning per share. Companies sometimes review tangible and intangibale assets for impairment, hoping they are worth less than their current value in the balanace sheet. They then "write down " or devalute, those asset and recognize the reduction as a large charge agaist earning.

You can understand Amortisation as : lets say a company's did research and made a patent on medical equipment which has a life of 15 years. There are certian cost involved while creating the medical equipment, and that is spread out over the life of the patent, with each portion being booked as an expense on the company's income statement.

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Posted in Oracle Asset | 7 Comments »Email This Post Email This Post | Print This Post Print This Post

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7 Responses
  1. Understanding Depreciation Books: Back to Basic Says:

    […] Depreciation and Amortization […]

  2. Nitin Gupta Says:

    Amortization basically means to divide an ‘adjustment’ over left out period
    E.g if you do a cost adjustment say-you have increased cost of asset. For the resultant adjustment you have option either to expense ( whole amount will get charged to current period only ) or amortise it, if you choose to amortise then the adjustment will get divided to rest of the period of life of the asset.

    When you choose to amortize an adjustment, Oracle Assets uses the Amortization Start
    Date to determine the amount of catchup depreciation to take in the current open
    period. The remaining depreciation is spread over the remaining life of the asset.

  3. roy Says:

    Hi,
    Normally to setup a new tax book in FA, you just create a tax book, assign it to asset categories and you run Initial Mass Copy.
    My problem is that after performing the above steps i found the depreciation amount were not correct as i performed the same calculation on excel for the tax amount. Note: in my corporate book i use STL and in tax book i use Reducing depreciation method.
    So, in the same period that i perform the Initial copy, i performed some entries in FA_TAX_INTERFACE. The cost, date place in service,etc do changes after running the Upload Tax lines request. But the YTD depreciation and Accumulated Depreciation amounts are not populated although the date place in service is in the past.
    What may be the reason/s!

    Regards,
    Roy.

  4. ram ganesh Says:

    Hi

    Kindly refer to the following “4)The asset book and asset category can be defined in Payables on the invoice line. If these are defined in Payables, they will appear in the Mass Additions Prepare screen when the asset is reviewed.” contained in the article posted in appshub.com.Would like to share that these informations get populated in the Prepare Mass Additions only if there is a Integration between, Inventory, Procurement, Payables and Fixed Assets and where there is only an integration between fixed assets and Payables these information do not get populated in Prepare Mass Additions. The reason being that the COncept of Invoice Line has been introduced for Item wise matching between PO and AP Invoices.

    Regards
    Ram Ganesh Balachandran

  5. Amortization-Mass changes in Oracle FA Says:

    Hi Sanjit,

    Thanks for the post. It’s really helpful to understand the concept. Could you explain me the amortization steps to execute in Oracle Assets. Is it the Mass changes functionality? Where we enable amortize adjustments. Please also explain me the significance of enabling this check “amortize adjustments”.

    Thanks,
    Raja

  6. Sanjit Anand Says:

    are you using PA??

    so lets recap back to basic:
    If you are Checking the Amortize Adjustments check box then you will be amortize the catchup depreciation on a cost adjustment over the remaining life of the asset. If you do not check Amortize Adjustments, Oracle Assets expenses the catchup depreciation expense for the adjustment in one
    period.

    Amortized Adjustment are going to impact depreciation expense going forward.

    Expensed Adjustment will impact current period w/catchup (+ or -).

    Coming to you query on Mass Change Functionality :

    If you are in 10.7, the feature was not and you cann’t do. Despite doing a mass change of
    thousands of assets, amortization of the changes needs to be processed on an
    individual asset-by-asset basis .

    If you are 11i+, check the Amortize Adjustments
    box at the bottom of the form before hitting the Preview/Run mass changes button, once the changes are entered.

    Hope this help , else let me know iof stuck.

  7. Nagesh Says:

    Hi,
    Can any one pls explain the Assets Cycle.

    Thanks,
    Nagesh.

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