Remaining Value Method

Question

Hello, 
 
 I have some assets that were Place in Service on 1/4/17, estimated life of 5 yrs. 6 mo., depreciation ran through 7/31/17, and all have a SL depreciation method. I was notified that assets had to be accelerated to be fully depreciated by 8/31/17. So I changed the depreciation method to RV and changed the estimated life to 0 yrs. 8 mos. but the asset will not fully depreciate. In the past i haven't had issues doing this except for today. Would you please advise? 
 
 Thanks

Bob Mc · Answer

An asset is capitalized because it contains future value which is recorded on the balance sheet. An asset is expensed when it is consumed within one year. The amount paid for that asset is then written off on the Income Statement as part of doing business for that year. 
 You intended to capitalize these assets because you entered a life of 5 and a half years when you initially put them into service last January. But now, something has happened to these assets, and you want to record them as fully depreciated by next week. In other words, they reached their obsolescence in only 8 months. 
 And though you have found from past experience that changing the depreciation method to RV worked for you to accelerate depreciation on other assets, that's not the issue here. Rather, the problem is trying to change the life to something less than one year. The program won't let you do that because the asset no longer meets the definition of a capitalized fixed asset. 
 Therefore, these assets need to be expensed rather than capitalized. 
 What about the amount of depreciation you've already posted to your General Ledger (which was probably through July)? You'll need to make an adjustment to your G/L to account for your YTD accumulated depreciation. Then, using the Reset Depreciation tool, reset depreciation to the Placed in Service Date, and change the depreciation method to NO. This will erase accumulated depreciation and prevent the asset from contributing any further to your depreciation expense. 
 I also recommend that you add a note to the asset record explaining why the asset was consumed in 8 months instead of lasting 5 1/2 years. At some point later, an auditor might ask that very question. 
 I assume this was done for reasons related only to financial reporting. Therefore, the asset will continue to depreciate in the tax books to the end of its life as set by the IRS.

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