FAQ: Depreciation

FAQ: Depreciation

What is the difference between useful life and salvage value?

Useful life is how many months (or years) the asset will serve your business. For example, office furniture might have a 5-year (60-month) useful life, meaning you expect to use it for 5 years before it becomes obsolete or worn out.

Salvage value is what you expect the asset to be worth at the end of its useful life. For example, that same office furniture might have a salvage value of 20% of its original cost, meaning if you paid 100,000 AFN, you expect to sell it or scrap it for 20,000 AFN after 5 years.

The depreciable amount = Cost − Salvage Value. Only this amount is spread over the useful life. If useful life is 5 years and depreciable amount is 80,000 AFN, depreciation is 80,000 ÷ 60 months = 1,333 AFN per month.

Can I change the useful life or salvage value after I've started depreciating?

Yes, you can edit an asset and change its useful life or salvage value at any time. However, changing these values will affect future depreciation calculations, not past ones. If you retroactively change useful life, the system recalculates future depreciation based on the remaining net book value and the new useful life.

Best practice: Review your estimates annually and adjust if they are no longer realistic. For example, if you initially estimated a truck to last 10 years but plan to replace it in 5 years, reduce the useful life to reflect the actual expected use.

What happens if an asset is fully depreciated (net book value = zero)?

Once accumulated depreciation equals the asset's cost (or cost minus salvage value), the asset is fully depreciated. The net book value is zero (or salvage value).

If you continue running depreciation for this asset, the system will either:

• Prevent further depreciation (throw an error or skip it), or
• Post zero depreciation (no expense, no change to accumulated depreciation).

A fully depreciated asset is still on the books and still in service; it just no longer generates expense. You may continue using it until it is disposed of.

Can an asset have negative net book value (i.e., accumulated depreciation > cost)?

No. The system prevents accumulated depreciation from exceeding the original cost. If you attempt to over-depreciate, the system will cap accumulated depreciation at cost (or cost minus salvage, depending on your method).

If an asset's accumulated depreciation equals its cost and you try to run more depreciation, the system will either error or post zero depreciation.

What if I dispose of an asset (sell or scrap it)?

When you dispose of an asset:

1. Record the disposal date and proceeds (sale price or scrap value).

2. Select the disposal type: Sale or Write-Off (scrap/removal).

3. The system calculates the gain or loss on disposal:

   • Gain = Proceeds − Net Book Value (if you sell for more than the remaining value)
   • Loss = Net Book Value − Proceeds (if the asset is worth less than its book value)

4. A journal entry is posted that:

   • Removes the asset from the books (credits Fixed Asset account)
   • Reverses accumulated depreciation (debits Accumulated Depreciation account)
   • Records proceeds (debits Bank or Cash account)
   • Records gain or loss (credits or debits Gain/Loss account)

The asset's status changes to Disposed and it no longer appears in active asset lists.

Can I depreciate an asset retroactively (for past months)?

Yes, you can manually run depreciation for a prior period if it was missed. Go to the asset's depreciation form and enter an earlier period (e.g., "2026-05" for May 2026 if you forgot to run it then).

However, each asset can only be depreciated once per period. If you already ran depreciation for May 2026, you cannot run it again for the same month. You would need to reverse the earlier entry first.

How do I choose between "Straight-Line" and "No Depreciation"?

Straight-Line depreciation evenly spreads the asset's cost over its useful life. This is the most common method and works well for most assets: vehicles, furniture, equipment.

No Depreciation means the asset is never depreciated (no expense is recorded). Use this for:

• Land (land is not depreciated under most accounting standards; only buildings and structures deteriorate).
• Assets that are already fully paid and expensed (e.g., a fully depreciated piece of equipment you keep using).
• Non-depreciable intangible assets (goodwill, brand names, etc., usually require impairment testing rather than depreciation).

What is the difference between "Depreciation Expense" and "Accumulated Depreciation"?

Depreciation Expense is the amount you recognize as an expense in the current period (e.g., 1,500 AFN in June 2026). It appears on the income statement and reduces net profit.

Accumulated Depreciation is the total amount depreciated since acquisition (e.g., after 12 months, it might be 18,000 AFN). It appears on the balance sheet as a contra-asset and offsets the gross cost.

Think of it this way:

• Depreciation Expense = current month's cost
• Accumulated Depreciation = total cost to date

Can I depreciate assets purchased mid-month or mid-quarter?

Yes. You can run partial depreciation for the period when an asset is acquired or disposed of.

For example, if you buy a computer on June 15 and the monthly depreciation is 500 AFN, you might record 250 AFN for June (half a month). Then, starting in July, you record the full 500 AFN per month.

Manually enter the adjusted depreciation amount in the Depreciation Amount field, and add a clear memo explaining the calculation (e.g., "Acquired June 15; half-month depreciation").

What happens to depreciation if I change the acquisition date?

If you edit an asset and change its acquisition date, future depreciation calculations use the new date. However, past depreciation (already posted) is not recalculated.

Best practice: Keep acquisition dates accurate from the start. If you need to correct a date retroactively, consult your accountant; changing dates can affect tax filings and audit trails.

Can multiple users run depreciation on the same asset simultaneously?

No. Only one user can run depreciation for a given asset in a given period. If two users attempt to run depreciation for the same asset and period at the same time, one will succeed and the other will receive an error ("Depreciation already recorded for this period").

To avoid this, coordinate with your team and assign depreciation runs to one person per period.

How do I verify that depreciation is correctly calculated?

1. Check the asset's detail page: Review the "Capitalized Cost," "Accumulated Depreciation," and "Net Book Value" fields. Net Book Value should equal Capitalized Cost minus Accumulated Depreciation.

2. Review the depreciation schedule preview before posting. The system shows the expected accumulated depreciation and remaining net book value over time.

3. Run a Fixed Asset Report at Reports → Fixed Assets (or similar). This report shows all assets with their costs, accumulated depreciation, and net book values.

4. Verify the general ledger entry by viewing Transactions and searching for the depreciation expense account or accumulated depreciation account. Check that the debit and credit amounts match and are reasonable.

5. Compare to a manual calculation: Depreciable Amount ÷ Useful Life (in months) = Monthly Depreciation. For example, (100,000 − 10,000) ÷ 120 = 750 AFN per month.

Can I run bulk depreciation for all assets at once?

Yes, if your system supports it. Look for a "Run Depreciation for Period" or "Bulk Depreciation" option on the fixed assets page. This allows you to select a period (e.g., "2026-06") and depreciate all eligible active assets at once.

If bulk depreciation is not available, run depreciation manually for each asset, or ask your administrator if a bulk feature can be enabled.