Asset Depreciation – Should Asset Management Software Calculate It?

Asset Depreciation – Asset management solutions are about. . .

  • Spawning actionable team discussion about ways assets are managed.
  • Supporting team efforts with asset data repositories.
  • Delivering insightful asset metrics to assess asset performance.

Asset Depreciation – The accounting function. . .

  • Needs automated asset services that differ from needs of the asset management team.
  • Determines when assets are expensed or capitalized.

Asset Depreciation

Capitalized assets are eroded off the books by scheduled depreciation – “straight line”, “sum of years digits”, “double-declining balance” and other methods determined by business convention and perhaps applicable law.

Learn more about depreciation and depreciation methods.

An organization’s accounting, or sometimes ERP, application software supports accounting’s specific, narrower, requirements – including calculating depreciation.

When an asset management solution has depreciation calculation capabilities, using them might result in the asset management team duplicating efforts already performed by the accounting function.

You certainly don’t want two separate functions, accounting and the asset management team, using separate tools to calculate depreciation. This would represent duplicated effort and could lead to dueling numbers; where the separate calculations do not agree and people spend time picking through minutia to account for the differences.

When the asset management team wants to know the book value of the assets it’s watching, it should rely on the accounting function for this information.

The asset management team is likely to have little need for asset depreciation capabilities. The team ought to be looking at life cycle events and studying asset failure modes. The goal is to enhance asset utilization, extend asset service life, and increase asset availability.

Significantly extending asset service life could trigger a chat with Accounting – to base depreciation on longer asset service lives.