Differences between the daily depreciation method and the periodic depreciation method in Microsoft Dynamics GP

INTRODUCTION

This article discusses the differences between the daily depreciation method and the periodic depreciation method in Microsoft Dynamics GP 9.0 and in Microsoft Business Solutions - Great Plains 8.0. You select the depreciation method in the Book Setup window in Fixed Asset Management in Microsoft Dynamics GP 9.0 and in Microsoft Business Solutions - Great Plains 8.0.

MORE INFORMATION

A yearly depreciation amount is calculated for each asset. Microsoft Dynamics GP calculates the same yearly depreciation amount regardless of the depreciation method that you use.

When you use the daily depreciation method, the yearly depreciation amount is divided by the number of days in a calendar period. Therefore, the depreciation amount varies depending on the number of days in the month. For example, the depreciation amount in February is less than the depreciation amount for the months that have 31 days.

When you use the periodic depreciation method, the yearly depreciation amount is divided by the number of periods in the year. Therefore, the depreciation amount is the same for each period.

 

Example of how depreciation is calculated

Consider the following data: • Asset cost: $10,000
• Original life in years: five
• Original life in months: 60
• Place in service date: 01/01/2006
• Zero YTD depreciation
• Zero LTD depreciation
• Averaging convention: full period
• Period: calendar year




When this data is used, the following depreciation amounts are calculated when you use the daily depreciation method and when you use the periodic depreciation method.

Month

Daily depreciation method

Periodic depreciation method

January

169.77

166.58

February

153.34

166.58

March

169.77

166.58

April

164.30

166.58

May

169.77

166.58

June

164.30

166.58

July

169.77

166.58

August

169.77

166.58

September

164.30

166.58

October

169.77

166.58

November

164.30

166.58

December

169.74

166.52

Total

1998.90

1998.90


When you use the daily depreciation method, the depreciation amount is calculated as follows: • $10,000 divided by 1,826 days equals a daily depreciation amount of $5.48. 1,826 is the total number of days in five years plus one day for leap year.
• The depreciation amount varies depending on the number of days in a particular month. For example, March has 31 days. Therefore, $5.48 × 31 days equals the depreciation amount of $164.30 for March.



When you use the periodic depreciation method, the depreciation amount is calculated as follows: • $10,000 divided by 1,826 days × 365 days equals the yearly depreciation amount of $1,998.90. Then, $1,998.90 divided by 12 months equals the periodic depreciation amount of $166.56.



Note When a standard straight-line depreciation method is used, the depreciation amount is calculated as follows: • $10,000 divided by five years equals $2,000. Then, $2,000 divided by 12 months equals the depreciation amount of $166.67.

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