Weekly Dynamic: What REALLY happens with FA Recalculate

Working with Fixed Assets, when you change a depreciation sensitive field, you get a box with three RESET choices that pops up. The choices are to reset: Life, Year or Recalculate.

Reset Life
As a reminder, resetting Life adjusts the depreciation to date for the changes and makes an adjusting entry in the current period to catch up depreciation.

Example: 3,600 asset, SL depreciation, no Salvage, 3 year life = $100 depreciation.mo. In month 8, year 1 add 1,000 to the cost, reset life. The Aug. entry is $322 for Aug. depreciation and catch up. Go forward depreciation is ~$127/month.

Reset Year
Resetting a Year adjusts the current year's depreciation for the changes and makes an adjusting entry in the current period to catch up annual depreciation.
 
Example: 3,600 asset, SL depreciation, no Salvage, 3 year life = $100 depreciation/mo. In month 8, year 2, add 1,000 to the cost, reset year. The Aug. Y2  entry is $322 for Aug. depreciation and catch up. Go forward depreciation is ~$155/month. Year 1 is unchanged, Year 2 catches up ~$155/mo. is depreciation going forward.

So far, so good.

Recalculate
In GP, the help describes recalculate in multiple places as:

"Recalculate   Calculates a new rate of depreciation using the new cost basis data, but does not make adjusting entries for depreciation already taken. The new rate of depreciation will be used the next time the depreciation routine is completed."

 This makes it sound like Net Book Value (NBV) is used to simply recalculate depreciation from the point of the change. Based on that statement, we expect GP to do this:

Example: 3,600 asset, SL depreciation, no Salvage, 3 year life = $100 depreciation/mo. In month 8, year 2 add 1,000 to the cost, recalculate. You would expect the August depreciation, and subsequent periods, to be 158.52. (3,600cost-1,900accum=1,700nbv+new 1,000=2,700newNBV / 17 remaining months).

That's not how it works. GP calculates it as 166.66/mo for the remaining periods in year 2 and 155/mo in year 3.What GP actually does with recalculate is to perform a reset year. Then is spreads the reset adjustment over the remaining periods in year. Finally it recalculates the remaining years going forward. You'll notice that the Y3 amount for recalc is the same as the amount used for  reset year from the example above.

This means that if you change an asset in the last month of the year, Reset Year and Recalculate give you the same answer.

Buried in the help (Search for Recalculating Depreciation) is this comment:

"The difference between the new yearly rate and the current year-to-date depreciation amount will be allocated over the remaining time in the current fiscal year."

This is the only place that I can find where this calculation is, sort of, documented.

It's not that the Recalculate process is necessarily wrong, it's just that it doesn't work the way we expect it to based on the name and brief description provided in the help. For most folks, this isn't a problem. However, if you make a large change to an asset late in the year, you can see a dramatic change in depreciation, when you might have been expecting a very small change.

[H.T. to Marty Rubin, Sandra Dodge and Amy Walsh of I.B.I.S. for this.]