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DEPREC - Depreciation Schedules 1. INTRODUCTION Depreciation is a non-cash item deducted from income before taxes are calculated. It is intended to allocate the cost of capital equipment over its useful life. A number of methods can be used to calculate the amount to be allocated, and you should seek qualified advice to choose the appropriate method. This worksheet calculates depreciation by five methods: - straight line: the depreciation amount is the same in every year (except possibly the first and last). - sum of years' digits: each year in the life is assigned a number from N to 1 (i.e. in reverse order). The depreciation in each year is proportional to the number assigned to that year. - declining balance: the depreciation in each year is a fixed percentage of the opening book value for the year. - declining balance with crossover: this method is similar to declining balance, except that when the depreciation falls below what would be allowed by the straight line method over the remainder of the life, the (higher) straight line depreciation is used. This method depreciates the book value to the salvage value over the life of the asset; the declining balance method may not depreciate it so much. - accelerated cost recovery system: the Economic Recovery Tax Act of 1981 introduced new rules for depreciation. Assets are assigned to one of five categories, and the depreciation percentages are laid out for each category. This worksheet is very simple to use. Just enter the cost and other data shown in the input menu, and request a calculation. You can examine the results of the calculation on your screen in tabular or graphic form, or send them to your printer. Three forms of graph are available for each schedule: a line graph, a side-by-side bar chart, and a stacked bar chart. 2. USING DEPREC The main menu of the DEPREC worksheet offers you seven choices (plus Quit). They are as follows: Input This choice allows you to enter the input data needed for the depreciation calculations. It leads to a sub-menu of all the input data items. To enter or change an item, select it from this menu, type the value, and press the 09/09/84 DEPREC - 1 ENTER key. Input is described in more detail below. Blank Choose this option if you want to clear the input area and all calculated results. You will be asked to confirm your intention to delete all the data. Calc When you have entered your data, select this option to perform the calculations. It will set up all five depreciation schedules then return you to the main menu. Results This option displays the depreciation schedules on your screen. It leads to a sub-menu from which you can select the schedule you want to display. If the life of the asset is more than 15 years, you will get a scroll menu along with the schedule so you can scroll the display up and down the schedule. Graph You can produce three graphs from each schedule. The first is a line graph showing the annual depreciation and closing book value for each year, and accumulated depreciation. The second is a side-by-side barchart showing the same information as the line graph. The third is a 'stacked bar' chart. In this chart, the lower section of each bar represents the closing book value; the middle section represents the depreciation for this year, and the top section represents the prior accumulated depreciation (thus the top two sections taken together represent the accumulated depreciation). The Graph option is described in more detail below. Print You can print any of the depreciation schedules, and the input data area. The Print option is described in more detail below. Agenda If you select this option (and confirm it when requested), the current worksheet is lost and replaced by the main agenda. Then you can load another worksheet from the disk. Note confirmation is required before this option proceeds, because it will overwrite the current worksheet. 2.1 Input Details The input menu allows you to enter or change any input value. The menu offers seven choices (plus Quit). To enter or change a particular value, select it from the menu, type the (new) value, and press the ENTER key. The value you enter will be checked for reasonableness. If the value is not reasonable (eg. asset cost is zero or less), 1-2-3 will beep at you, and you must enter a new (reasonable) value before you can return to the input menu. The items you can enter are as follows: 09/09/84 DEPREC - 2 Cost allows you to enter the original cost of the asset. This may be any value that is greater than the sum of the salvage value and the grants. Note that if you are replacing data that is already present, and you want to enter a substantially lower value for the cost, the system may object because it is lower than the sum of the previous values for grants and salvage value which have not been replaced. The simplest solution here is either to blank out the previous input using the Blank option in the main menu, or else to enter the salvage value and grants before the new asset cost. Grants allows you to enter the amount of any grants or similar credits which you might receive as a result of purchasing this asset. Obviously, you can only depreciate an amount net of these grants (which the worksheet calculates for you). Grants must be zero or greater, but not greater than the difference between the asset cost and the salvage value. If you are entering data on top of existing data, and the new cost is substantially greater than the old one, you should enter it first. Otherwise the worksheet may object to the value for grants because it is greater than the difference between the (old) asset cost and salvage value. Salvage allows you to enter the salvage value of the asset at the end of its useful life. The value you enter must be zero or positive, but less than the asset cost minus grants. If you are typing new data on top of existing data, and the new asset cost is substantially higher than the previous one, you should enter the cost first. Otherwise, the worksheet might object when you try to enter the salvage value because it is higher than the difference between the (old) cost and grants. PurDate allows you to enter the purchase date of the asset. The purchase data is split into two parts (distinguished by a sub-menu) - the year and the month. To enter the year of purchase, you must type (initial letters only) PurDate Year followed by the year (four digits). To enter the month of purchase, you must type (initial letters only) PurDate Month followed by the month (January=1, February=2, etc.). The purchase year is used only to annotate the schedules. The purchase month affects the amount of depreciation taken in the first year, and the amount that rolls over into the last year of the schedule. (Unless the purchase month is 1, the schedule will cover one more year than the life of the asset to accommodate this roll-over.) For example, if the purchase month is July (7), then only half the normal depreciation will be taken in the first year, and the following years' depreciations will be adjusted to compensate. If you can take the full depreciation in the first year, you should 09/09/84 DEPREC - 3 enter 1 for the purchase month, regardless of when the asset is purchased. The above comments do not apply to items in ACRS Recovery Cost Categories 1 through 4, which are unaffected by the month of purchase. For ACRS Recovery Cost Category 5, a different schedule of percentages applies to each month of purchase. Life allows you to enter the useful life (in years) of the asset. This determines the period of time over which the asset will be depreciated. DBRate allows you to enter the percentage of the opening book value that may be deducted each year. The amount that may be deducted each year decreases as the prior years' deductions reduce the book value. You must enter a number between zero and 100 (inclusive). ACRSCat allows you to enter the Recovery-Life Category, as defined by the Economic Recovery Tax Act of 1981. The Categories are as follows: 1 - 3-year property, for example automobiles, light trucks, and equipment used in research and development. 2 - 5-year property, including most machinery and equipment not falling into category 1. 3 - 10-year property, which covers certain types of public utility property and real estate. 4 - 15-year utility property, including public utility property, and some kinds of real estate such as low-rental units. 5 - 15-year real property, which covers all other real estate. You must enter one of the above category numbers, or 1-2-3 will beep at you. 2.2 Graph Details The graph menu offers you seven choices (plus Quit). Five correspond to the five schedules you can display. The other two allow you to choose the type of plot (line, bar, or stacked-bar), and to set options (color or monochrome plots). The information shown for each schedule is the same - annual and cumulative depreciation, and closing book value. A slight exception occurs in the stacked bar chart, where it makes more sense to show the prior accumulated depreciation above the current year's depreciation, so the sum of these two is the accumulated depreciation (which, when added to the closing book value, always gives the original cost, net of grants). 09/09/84 DEPREC - 4 The options in the graph menu are as follows: Type allows you to specify which form of graph you want. The three choices in the sub-menu are Line, Bar, and Stacked Bar. The line graph shows annual and accumulated depreciation, and closing book value in three separate lines. The bar graph shows the same three items as three vertical bars side-by-side. The stacked-bar graph shows only one vertical bar for each year. The bar is divided into three slices. The lowest slice represents the closing book value for the year, the centre slice represents the depreciation for the year, and the top slice shows the accumulated depreciation for prior years. Options allows you to specify Color or Black-and-white (ie. monochrome) graphs, and to View the latest graph without respecifying it. You might use this last option if you have reset some of the graph options without changing data, and want to see their effect. Stline plots the straight line depreciation schedule. YrDig plots the sum-of-years' digits depreciation schedule. Dbal plots the declining balance depreciation schedule. Xover plots the declining balance depreciation schedule with crossover to straight line. ACRS plots the Accelerated Cost Recovery System depreciation schedule. 2.3 Print Details When you choose Print from the main menu, the macro pauses so you can re-align the paper. Once you have done so, it remembers where the top of the page is so that it can skip to the top of a new page when you select the Page option from the print menu. The worksheet does not automatically skip to a new page after each schedule. If you want to print schedules on separate pages, simply use the Page option to force a skip to a new page after you've printed each one. If you omit the Page option, you can print several schedules per page. The print sub-menu offers seven choices (plus Quit). The choices are as follows: 09/09/84 DEPREC - 5 Input prints the input data area of the worksheet. Stline prints the straight line depreciation schedule. YrsDig prints the sum-of-years'-digits depreciation schedule. Dbal prints the declining balance depreciation schedule. Xover prints the declining balance depreciation schedule with crossover to straight line depreciation. ACRS prints the Accelerated Cost Recovery System depreciation schedule. Page forces a skip to the top of a new page. 3. EXAMPLE - Buying a Truck In July 1984, you buy a light truck for your business. The truck costs you $10,000, but you get a $500 tax credit. You expect the truck to last three years, at which point its salvage value should be $2,000. You want to consider a declining balance rate of 40%, and the truck is classified in ACRS cost recovery category 1. When the DEPREC worksheet is loaded, you may enter the data as follows: Keystrokes Comments {ENTER} Press the ENTER key to select the first choice in the main menu - Input. c 10000 {ENTER} Asset cost. g 500 {ENTER} Grants to be netted against the asset cost. s 2000 {ENTER} Salvage value. py 1984 {ENTER} Year of purchase. pm 7 {ENTER} Month of purchase. l 3 {ENTER} Asset life (in years). d 40 {ENTER} Declining balance rate. 09/09/84 DEPREC - 6 a 1 {ENTER} ACRS cost-recovery category. q Return to the main menu. c Calculate. There will be a delay while all the schedules are calculated. You can now display the schedules on your screen by choosing the Results option from the main menu. Here's how: r Select the Results option. i Displays the input (home) screen. This option typically has no effect, because you are already on the home screen. s Straight line depreciation schedule. y Sum-of-years'-digits depreciation schedule. d Declining balance depreciation schedule. x Declining balance depreciation schedule with crossover to the straight line method. a Accelerated Cost Recovery System depreciation schedule. If the asset life is more than 15 years, the display of a schedule is accompanied by a scroll menu that allows you to scroll up and down the schedule one screen-full at a time. The next option on the main menu is Graph. The graph menu offers seven choices (plus Quit). You can display any one of three types of graph for each of the five schedules. For example, if you want to display a stacked bar graph of the ACRS depreciation, you would proceed as follows (from the main menu): g Select the Graph option. ts Select a stacked bar graph. a Display this graph for the ACRS schedule. (Press any key when you've finished viewing the graph.) q Return to the main menu. To print the depreciation schedules, select Print from the main menu. For example, to print the input data and ACRS depreciation schedule on one page, and the straight line and declining balance depreciation schedules on a second page, proceed as follows: 09/09/84 DEPREC - 7 p Select Print from the main menu. The system will prompt you to align the paper in your printer to the top of a new page. {ENTER} Press the ENTER key when you have aligned the paper. This tells the system where the top of the page is so it can skip to the top of the next page if you select Page from the print menu. ia Print the input data and ACRS depreciation schedule on one page. psd Skip to a new page, and print the straight line and declining balance depreciation schedules. q Return to the main menu. 09/09/84 DEPREC - 8 Menu Tree for DEPREC Worksheet Input - Input all data. . Cost - Input the asset cost. . Grants - Input grants to be netted against the cost. . Salvage - Input the salvage value at the end of the life. . PurDate - Input the purchase date. . . Year - Input the year of purchase. . . Month - Input the month of purchase (January=1, etc.). . Life - Input the useful life of the asset (in years). . DBRate - Input the declining balance depreciation rate (%). . ACRSCat - Input the ACRS recovery-life category (1-5). . Quit - Return to main menu. Blank - Blank out all input and depreciation schedules. . No - Do not blank out; return to main menu. . Yes - Blank out data, then return to main menu. Calc - Calculate all depreciation schedules. Results - Display depreciation schedules on the screen. . Stline - Display straight line depreciation schedule. . YrsDig - Display sum-of-years-digits depreciation schedule. . Dbal - Display declining balance depreciation schedule. . Xover - Display crossover depreciation schedule. . ACRS - Display ACRS depreciation schedule. . Quit - Return to main menu. Graph - Display graphs of depreciation schedules. . Type - Set graph type. . . Line - Prepare to display line graphs. . . Bar - Prepare to display bar graphs. . . Stacked-Bar - Prepare to display stacked bar graphs. . Options - Set graph options. . . Color - Display graphs in color. . . B&W - Display graphs in monochrome. . . View - Re-display the last-seen graph. . Stline - Graph straight line depreciation schedule. . YrsDig - Graph sum-of-years-digits depreciation schedule. . Dbal - Graph declining balance depreciation schedule. . Xover - Graph crossover depreciation schedule. . ACRS - Graph ACRS depreciation schedule. . Quit - Return to main menu. Print - Print input data and depreciation schedules. . Input - Print input data. . Stline - Print straight line depreciation schedule. . YrsDig - Print sum-of-years-digits depreciation schedule. . Dbal - Print declining balance depreciation schedule. . Xover - Print crossover depreciation schedule. . ACRS - Print ACRS depreciation schedule. . Page - Skip to the top of the next page. . Quit - Return to main menu. Agenda - Return to worksheet agenda. . No - Do not leave this worksheet; return to main menu. 09/09/84 DEPREC - 9 . Yes - Clear this worksheet and load agenda. Quit - Exit to 1-2-3 READY mode. 09/09/84 DEPREC - 10