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Understanding Depreciation Books: Back to Basic

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

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Fixed Asset is one of the easiest application in Financial side but whenever its comes to discussion for depreciation, people roll their eyes and shudder. I received lot many emails and offline request for understanding asset tax book and deprecation. This is back to basic subject, an attempt to draw a line in the sand.

In EBS , there are three types of Depreciation Books you can manage:

1 Corporate Book :This is the main asset book type used to hold the Fixed Asset Register in accordance with your corporate policy. The Corporate Book is linked to the appropriate GL Set of Books for journal postings.

The Corporate Book into which the invoice lines from Oracle Payables or Oracle Projects flow. It is the main depreciation book from which journal entries are created for General Ledger.

2 Tax Book : This book type is subsidiary to the your corporate book and is used to hold the same assets as in the Corporate book but depreciate them differently for tax or legal / fiscal purposes.

From the corporate book the transactions can be copied into the Tax Book. It is called tax book because it is generally used to keep the tax depreciation. One can maintain different depreciation methods and life from the corporate book for the same assets. The accumulated depreciation of previous fiscal years can only be adjusted for tax books.

3 Budget Book :This book type is also subsidiary to a Corporate book and is used to hold capital budget information. No actual assets are held in a Budget book. Multiple Budget books can be linked to one Corporate book.

Once you created Budget Book and budget assets, you can run budget reports and project depreciation expense for amounts budgeted to each category. Planning to have another post on Asset Budgeting.

dgreybarrowImplementation Consideration :Steps/process

When setting up the depreciation books, one defines which set of books and therefore which Accounting Flex field/Calendar/Currency will be the basis and for which set of books journal entries will be created. The depreciation and prorate calendar need to be chosen. The current open period needs to be chosen and the method for dividing the annual depreciation amount over the periods in the fiscal year.

The accounting rules have to be chosen and the profit/loss accounts that the account generator will use to create the account combinations. The journal categories for the journal entries in General Ledger have to be chosen.

Asset Calendars are assigned to asset books for purposes of calculating and allocating depreciation expense.

Asset Categories are assigned for use with asset books. All assets are assigned to an asset category which designates accounting information and default depreciation rules for the assets. Depreciation methods are assigned to asset categories.tax book

dgreybarrowCreating a Tax Book

  • Tax books can be created before you add and depreciate assets.
  • Driving factors for deciding tax books is to comply with tax laws .
  • You Can manage multiple tax books that are associated for each corporate book.
  • You can also define independent tax depreciation books for each reporting authority.
  • You can copy assets into each book and depreciate these according to each book's depreciation rules.

dgreybarrow Entering Information in Tax Books

  • Mass Copy can be used moving corporate book to your tax books automatically .
  • As mention above , you can manage multiple tax book but you need to maintain your asset information in your corporate book, and then update your tax books with assets and transactions from your corporate book.
  • If you choose to copy adjustments, Oracle Assets copies cost adjustments from the associated corporate book if the unrevalued cost in the corporate book before the adjustment matches the unrevalued cost in the tax book. It copies both adjustments that are ADJUSTMENT type in the tax book and adjustment transactions that create a new ADDITION type and update the ADDITION/VOID in the tax book.
  • You should note that initial mass copy is used to initially populate your tax book by adding existing assets to a tax book.
  • Assets and transactions into the tax book can be entered manually.
  • Periodic Mass Copy each period can be used to keep your tax book updated with your corporate book.
  • You cannot copy assets from one corporate book into another corporate book.

dgreybarrow What is the difference between book depreciation and tax depreciation?

Corporate book depreciation is the amount recorded on the “books” and reported on the financial statements. This depreciation is based on the matching principle of accounting.

Whereas , the tax depreciation is recorded on the company’s income tax returns and will be based on the Local Internal Revenue Service’s rules.The IRS might specify that the machine is a 7-year machine regardless of a company’s situation. The IRS rules also allow a company to accelerate the depreciation expense. Accelerated depreciation means taking more depreciation in the first few years and less depreciation in the later years of the machine’s life. This saves income tax payments in the first few years of the asset’s life but will result in more taxes in the later years. Companies that are profitable will find the accelerated depreciation to be attractive.[Apoted]

dgreybarrow Some FAQ

Q. Which Book allows mass copies checked in order for the mass copy to copy.
A. Only the tax book needs to have the allow mass copy checked

Q. How do I disable a Book?
A. You can disable the book is to end date it.The end date The end date is as of today or later and cannot be post-dated.

Q. Can be manage multiple FA Books pointing to a GL book?
A. Yes, you may have multiple FA books tied to the same GL Set of Books.
Create Journal Entries, which is where the interface from FA to GL occurs, is run by individual book in FA.

Q. Can it be possible to push the same payables item into 2 different fixed asset books to get depreciated with 2 different methods?
A. Yes, you can ..If you would create a corporate book and attach a tax book with different depreciation rules. Then you can send the invoice from AP to the corporate book and later mass copy it to the tax book.

dgreybarrowSimilar Post

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9 Responses
  1. FA : Capital Budgeting & Depreciation Forecast Says:

    […] : Capital Budgeting & Depreciation ForecastUnderstanding Depreciation Books: Back to BasicOracle Fixed Asset:Security by BookFNDLOAD for AME’sMigration of XMLPub Templates :XDOLOADER […]

  2. FA Tax Book Question Says:

    Can the Tax Book be a different currency to the associated corporate book?

  3. Sanjit Anand Says:

    Dear James,

    normally corp and tax books have different calendars but have same currency,coa and depreciation rules.

    An asset book is always attached to 1 GL SoB and you could only attach tax books going to different SoBs to it.Therefore Currency is being derive at SOB level.

    If you have to enabled MRC for the TAX book from GL Conversion Options then you can manage different currency.Though I donot have experince , still logically you can do.

    Example if USD is primary then you can do both a USD (Primary) and EUR (Reporting) TAX book, but you have to setup the Primary first.

    Hope this helps
    -sanjit

  4. J Says:

    As you know, most everyone maintains prepaid assets and associated amortization manually (i.e. Excel). Is it possible to automate the prepaid amortization process within the Fixed Assets module?

  5. Bill Says:

    If you convert in historical (fully depreciated) assets into your CORPORATE book, will the tax copy recognize these assets in the period you converted them in, and correctly set them up in the TAX book? My issue is that I have a number of these historical assets that are ‘done’ in the corp book but still are actively depreciating in the tax book. Thoughts?

  6. Belal Bani Hani Says:

    can i use tax book for reporting issue without generating any JVs to GL

  7. Jennifer Says:

    how much time is required to setup a tax book using Oracle application?

  8. Sanjit Anand Says:

    Hi Jennifer,

    Setup is not so difficult. If you have finalize the structure of tax book with all details , setup would take less than 5-10 mins followed by final check of testing which takes less than 5 min. The entire exercise would be less than 15 min, but most important is set up data , which required lot of time to get it businses user.

    If your question means some other info, let me know.

    Thanks,sanjit

  9. vivek Says:

    Hello Sanjit,

    Can Tax Book be pointed to different COA?

    Or the COA for Tax Book has to be the same as Corporate Book?

    If let’s say for a company to meet corporate requirements we want different Corporate Book that follows US COA,USGAAP,INR and for Emerging Market we want Tax Book that follows lets say India COA then is that possible or to achieve that we must have a secondary ledger that follows India COA?

    Thanks,Vivek

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