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# Asset Depreciation (1 of 4) – An Introduction and Summary

Last Updated on November 19, 2022 by maximosecrets

Asset Depreciation was introduced in Maximo 7.6.0.3 back at the end of 2015 and so it has been around for a while, but perhaps not used by many clients. It originated from functionality that was in Maximo for Transportation.

The topic is quite large, it has been split into four:

1. An Introduction and Summary to Asset Depreciation
2. Setting up Asset Depreciation
3. Asset Depreciation – Manage Depreciation Schedules
4. Asset Depreciation – Swap/Split Depreciation Schedules

## What is Asset Depreciation?

Asset Depreciation is the periodic allocation of an asset’s original purchase price over the service life of the asset. It is important because it defines the expectation of an asset’s useful life, allows you to understand an asset’s current value and remaining life, and for assets in storerooms it would allow you to adjust the inventory cost based on current value. Maximo’s asset depreciation will also create financial transactions for the asset’s devaluation.

You define the original purchase price or the current value of the asset, the number of periods over which depreciation will last and the residual value of the asset at the end of the term. Depreciation can then be calculated as the per period reduction in value between the date associated with the original price or current value and the end of the term over which depreciation is calculated.

Asset Depreciation is important for Maximo clients because knowing the current value of the asset can help in repair or replacement decisions.

## A Simple Example

An asset is purchased on 1st January 2020 for \$12,000 and its expected life is 5 years and after 5 years the salvage amount is expected to be \$2,000. On a linear basis for each year there would be a depreciation of \$2,000.

• (Starting Cost – Salvage Amount) / Life
• (\$12,000 – \$2,000) / 5 = \$2,000 of depreciation per year

## This simple example modelled in Maximo

Asset 2117 – a single axle dump truck was purchased for \$12,000 on 01-Jan-20. In the More Actions menu of the Assets application there is a sub menu of actions associated with Depreciation Schedules.

Using Manage Depreciation Schedules a dialog opens, and this shows that the Purchase Price has been defaulted to the Starting Cost. We can enter \$2,000 for the Salvage Amount. The Depreciation ID has been autokeyed – 1007 in this case. The menu beside this will open the View Depreciation History dialog.

Using the New Row button we can create a depreciation schedule. In this case we have chosen:

• Method = SL – a straight line depreciation
• Period Type = DATE – date-based depreciation instead of METER, a depreciation based on how much you use the asset.
• Period = 5 and Period Units = Year – depreciation over a 5-year period
• Start Date = 01-Jan-20 – this field defaults to today as the starting date
• Calculation Day = LAST – depreciation is calculated on the last day of the period, you could have chosen FIRST or left blank.
• Ratio = 100.00 – This is the percentage amount given to this depreciation schedule. If there are multiple depreciation schedules for the same asset the total across all rows must add up to 100%.
• Financial Schedule = 1 – This is an indicator that depreciation is being used to calculate a financial value of the asset. The default is unchecked, depreciation may be used to calculate the real value of the asset or to assist in repair or replace decisions.
• Create GL Transactions = 1 – This enables and makes mandatory the GL Debit Account and GL Credit Account fields below it.

Over on the right-hand side of the dialog there are four tabs. The second one is Preview which has a Refresh button to make the calculation. This shows that at the end of the first year 31-Dec-20 a depreciation amount of \$2,000 will occur and the depreciated value will then be \$10,000. After 5 years the depreciated value would have reached the salvage amount of \$2,000.

After you have pressed OK to save the depreciation schedule then returning to the Manage Depreciation Schedules action you will find that there is now a set of records for the asset’s depreciation in the Current Schedule tab. These records are stored in the table DEPSCHEDPERIODS. The top record indicates that a GL Transaction was created, this would be the case if the start date is in the past.

On the GL Transactions tab, you can see the transaction that was created. This has been written to the DEPTRANS table, from which an object structure and integration point can be created to transfer records to your finance system.

The History tab shows the history of depreciation on this asset.

## A summary of Asset Depreciation functionality

We have seen a simple example of asset depreciation, now we will provide a summary of the main functionality of asset depreciation which we will cover in more detail in other pages.

• An asset can have a depreciation schedule based on dates or meter usage
• There are two algorithms for calculating asset depreciation, straight line (SL), and double declining balance (DDB)
• An asset can have multiple depreciation schedules with a percentage weighting that determines how much the schedule contributes to the assets current value
• A background Cron Task creates GL transactions for transfer to a finance system
• A depreciation schedule can be updated, removed and deleted
• A depreciation schedule can be recalculated from a point in time after it has started
• You can define a template for asset depreciation on both the Item Master and the Asset Templates applications
• Asset depreciation is triggered as part of receiving but can be updated based on invoice cost
• The depreciation records (but not the GL transactions) move with the asset as part of an asset move to a new site within the same organization
• The depreciation schedules of two assets can be swapped
• A proportion of an asset’s depreciation schedule can be split across the asset’s children
• An asset’s depreciation schedules can be split across other assets
• Maximo maintains an audit trail of the changes made to an asset’s depreciation schedules

We have now provided the basics for asset depreciation and a summary of the functionality to be found. As you can see there is a lot to cover and we’ll start by looking at where we can set up asset depreciation, on the Asset Templates and Item Master applications.

## 2 responses to “Asset Depreciation (1 of 4) – An Introduction and Summary”

1. Nathan

Thank you! Great content.
Question: When you say, “It originated from functionality that was in Maximo for Transportation”, does that mean that the functionality is now available in base Maximo, without having the Transportation add-on?

1. Hi Nathan and thanks – yes, it is now in base Maximo since 7.6.03