26 January 2012

Weekly Review: Amortization vs. Straight Line Depreciation

Folks often have questions about the difference between Amortization and Straight Line Depreciation in the GP Fixed Assets module. This is how the various calculations work:

For Amortization:

Daily Amortization Amount * 365 (or 366 if leap year)
Weekly Amortization Amount * 52
Monthly Amortization Amount * 12
Quarterly Amortization Amount * 4
Yearly Yearly Depreciation Amount = Amortization Amount
Percentage (Cost Basis - (LTD Depreciation - YTD Depreciation)) * Percentage
Rate (Cost Basis - Salvage Value - Special Depreciation Allowance) * Rate

For Straight Line:

Depreciation Method Calculation
Straight-line Orig Life (Cost - Salvage Value - Special Depreciation Allowance) ÷ Original Life in Years
If the Original Life includes days, the days will be converted to a fraction with days as the numerator and 365 as the denominator. For example, if the number of days is 146, the fraction would be displayed as 146/365.
Straight-line Rem Life (Cost - Salvage Value - (LTD Depreciation Amount - YTD Depreciation Amount)) ÷ Remaining Life in Days
This calculation determines the daily depreciation rate, which must be multiplied by the number of days in the year.
This method is used when you select the Switch to Straight-Line option.

Since Amortization doesn't consider the life of the asset, only the cost, users need to calculate the life of an asset when using amortization, unlike depreciation.

[H.T. to Xen Osorio who clarified this beyond the help documents in a Partner newsgroup post.]
Originally Posted by Mark Polino at 3/01/2010 09:00:00 AM