Depreciation calculates differently after adding an asset improvement transaction

After adding an improvement transaction, depreciation amounts are higher than expected for the remainder of the current depreciation year.

Depreciation is annualized based on book value and Financial Edge uses the original book value for the year because that is the source of the depreciation amounts.

Each time you add an improvement transaction, Financial Edge is re-calibrating for the entire year but squeezing the new amount of depreciation into a smaller amount of time. This results in higher depreciation for the remainder of the depreciation year.

(Yearly depreciation amount - Amount of depreciation for the year) divided by (Remaining periods in year) =  New monthly depreciation for that year

Versus the amount for the next year:

(Yearly depreciation amount) divided by 12 periods in the year = (monthly depreciation)

When you are spreading the period depreciation out over the entire year, the amount decreases/returns to what might be the originally expected amount of depreciation.

It's possible to visualize these amounts on the Projected Depreciation tab by selecting Calculate. 


 Financial Edge

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