AssetManager Pro - changing an asset's effective life

AssetManager Pro - changing an asset's effective life

How do I change the effective life of an asset and what is the effect on depreciation calculations?

From time to time you may want to reassess the effective life for an asset due to a change in use or circumstances.

There are guidelines issued by the Australian Taxation Office (ATO) governing when a change in effective life can or must be made.

For book purposes, you can reassess the effective life any time after the year of acquisition for the asset.

This support note provides guidance on performing these changes.


How do I change the effective life of an asset?

  1. Go to the Acquisitions command centre and click Asset List. The Asset List window appears.

  2. Select the asset whose effective life you want to change and click Edit. The Asset Information window appears.

  3. Click the Acquisition & Depreciation tab.

  4. Click the zoom arrow Image next to the value in the Rate/Life column. The Changes in Effective Life (Years) window appears as shown below.


    Image

  5. Enter the asset's new effective life in the Years to field.

  6. Click OK. The new record is created on the list in the window.

  7. Click OK again to save the entry.

To change the effective life in the year of acquisition, follow steps 1 to 3 above and edit the value in the Rate/Life field.

The effective life for an asset will not be able to be changed in the following circumstances:


  • If an asset has been allocated to a pool for example Low-value Pool or STS Pool (Tax only)

  • If an asset has been fully depreciated at purchase (Book and Tax)

  • If an asset has a depreciation method of non-depreciable (Book and Tax)

  • The asset has been disposed of or written off

  • The asset has already reached its previously determined effective life.

How are my depreciation calculations affected?

The effect on your depreciation (decline) calculations depends on whether the asset is being depreciated on Diminishing Value or Prime Cost method.


Diminishing Value

If you are using the Diminishing Value method to calculate your depreciation, the new estimate of effective life is used when calculating the decline.

Note: For assets purchased before 10 May 2006 use "1.5" in the formula as shown below. For assetspurchased on or after 10 May 2006 use "2".

The formula is:

 

Opening Adjustable Value 

X 

Days held 

X 

              1.5               

 

 

365 

 

New effective life (years) 

 

 

 

Example:

 

$9500 

X  

365 

X 

1.5 

=

$2035.71 

 

 

365

 

 7

 

 






 

Prime Cost

If you are using the Prime Cost method, an adjusted formula is used, based on the asset's opening adjustable value and the remaining effective life of the asset.

The formula is:

 

Opening Adjustable Value plus other improvements 

X 

Days held

 X 

                    1                    

 

 

 365

 

Remaining effective life (years) 




 

Example:

Assuming that the asset had an original effective life of 5 years with 3.5 years remaining. The asset's effective life has been reassessed to 7 years (with 5.5 years remaining), effective from the start of the year.


 

$7800 

X 

365 

X  

 1  

= 

$1418.18 

 

 

365 

 

5.5

 

 






This formula is also used if there has been an Adjustment or Second Element of Cost transaction for the asset.


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