Changing Salvage Value to Zero

Question

I recently took over the Fixed Assets at our company. I notice that some assets were put in the Fixed Asset program with a Salvage Value for the Internal book. Some of the assets are still being depreciating and some of them reached the end of their Estimated Life on 12/31/12, so depreciation ended then. We have determined that they should not have been put in with a Salvage Value, so I would like to change that field to zero, and depreciate the rest of the value of the assets. What is the best method to do that? 
 I have tried to make the change in a test company on an asset that was "fully depreciated" on 12/31/12. When the box popped up for the Critical Depr Change, I tried making the change both as the Period Close Date (which is 12/2012) and also using the Current Thru Date. I depreciated the assets for the end of Oct as a test, but no change to the depreciation calculations for 2013. The Net Book Value still lists the amount of the previous Salvage Value. Any advise?

Bob Mc · Accepted Answer

If you leave the asset record alone and don’t alter it in any way, did you know that you will eventually recover its salvage value? You will recover the amount during the final disposition. E.g., let’s suppose you’ve got an asset fully depreciated but still carrying a salvage value of $1,000 in the Internal Book. Moreover, let’s suppose you can’t sell it because it really is worthless. Therefore, you decide to abandon it. When you dispose the asset by abandonment, you will book a $1,000 loss as a result. That is the negative amount that will be calculated by the SFA-Depreciation program. 
 However, let’s suppose that you don’t want to wait for the eventual transaction event. You prefer to record the $1,000 as depreciation expense now. Here is one way you could accomplish that. 
 You can take the remaining salvage value as a one-time depreciation expense in a fiscal year after the end of the life of the asset. 
 Continuing with the example of an asset with a $1,000 salvage value, let’s assume that your last fiscal year ended on December 31, 2012, and by then, the asset was depreciated insofar as the program will take it, i.e., to the $1,000 floor that was set as a salvage value. Now we’re in a new fiscal year -- 2013. Open the Detailed View of the asset record. At this point, I recommend that you print a copy of the Main Tab before you make changes just in case you later need to refer to the prior calculations. 
 Change the value in the Salvage Value field in the Internal Book from $1,000 to zero. This will prompt a warning and you will click the yes button. A dialog box will appear prompting you to set the effective date of the change. You will choose from at least 2 dates – Placed in Service Date or Current Thru Date. It really doesn’t matter which date you choose in this case. If you choose the Placed in Service Date, it will erase the blue Depreciation Calculation figures below, but if you captured the info by printing the hard copy as I suggested above, you can always refer to the printed document. However, it might be simpler for you to take the default selection, i.e., the Current Thru Date. This will automatically fill in the Beginning fields, but these are fields that you are about to alter. 
 Enter into the Beginning Date field a date that defines the end of your fiscal year. Let’s assume December 2013. Therefore, enter 12/2013 into the field replacing the older date. Again, you will see a warning, and again, you will click the yes button. 
 Then, tab to the next field and enter the $1,000, i.e., the amount that exactly matches your salvage value, into the Beginning YTD field. This is the depreciation expense you want to take on the asset in the current fiscal year. You will also want to post this same figure to your General Ledger, and/or to whatever financial documents you are using to record your depreciation expense from the SFA program. 
 Then, tab to the final field and enter an amount into the Beginning Accum field that matches exactly the figure recorded above in the Acquisition Value field. Hit the Save Asset button at the bottom of the screen, and presto, your asset is now fully depreciated and you have recovered your salvage value and taken it as depreciation expense in FY13.

Heather W · Answer

Thank you Bob. This accomplishes what we want, so we can take the "full" depreciation now, before the item is disposed.

Bob Mc · Answer

Heather, 
 Thank you posting your feedback. 
 One more thing. I recommend that you add a note to the Notes Tab on those assets you’ve altered in this manner. Your note might say something like this: 
 “This asset was fully depreciated in FY12 but with a remaining salvage value of $1,000. In FY13, the salvage value was expensed as depreciation using the Beg fields.” 
 Or, something to this effect in your own words. This will create a nice audit trail. And if the auditors a couple of years hence are in your office asking questions about the Beginning fields on this asset, you, or someone else who was hired into the job after your promotion, can always refer to the explanatory note. 
 --Bob

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