When a disposal is reversed, I recommend a new report be made available for the purpose of truing up depreciation accurately since the disposal date.
When an asset is disposed of, depreciation is calculated to the disposal date. When the disposal is reversed using the Delete Last Transaction command, the Current Thru Date will be updated on the asset record to the end of the month of the disposal date. And the depreciation for that month is not always the same as was calculated when the disposal was entered.
The reason for the possible disparity is because depreciation expense calculated in the month of the disposal will depend on the disposal date, depreciation method, and averaging convention.
Illustration: let’s say that a depreciating asset is disposed of on November 5, and the disposal method was SL. No depreciation would be calculated in the month of November. On January 5, the Fixed Asset manager learns that the disposal never happened and therefore reverses the disposal. The disposed asset will revert to the active state and the Current Thru Date will be updated to November 30. Moreover, depreciation will automatically be calculated for the month. When the asset is then depreciated through the end of December, to catch it up with the other assets in the company, the Depreciation Expense report, as well as other reports, will only show depreciation for the month of December. If the Fixed Asset manager is intending to make a manual adjustment to her journal to show that amount that was not previously recorded, she will overlook the depreciation expense for November.
Recommendation: Design a report to show:
All open books listed on the left side with 2 columns of information to the right.
Depreciation calculated through the Disposal Date in the 1st
Depreciation calculated through the EOM in the 2d column.
In this way, a disparity will clearly be recognized and managed appropriately.
Robert McElroy
