Depreciation Rules & Methods

Q: How is a migrated asset's charge computed?

The base nets out the Opening Accumulated Depreciation — depreciation already taken in the prior system — and reducing methods start from cost minus that opening figure. Practical tip: set the In-Service Date to the migration cutover, since that's the date the forward schedule runs from.

Controller 8 min read Updated July 2026

Depreciation answers one question — how fast does this asset's cost become expense? — and the method is the answer's shape: a straight line, a steep curve, or a single drop. Each asset carries its own method (defaulted from its Asset Type), and the schedule engine turns it into concrete monthly charges. Here's each method REDA Financials offers, with the arithmetic in plain sight.

Getting there. Open the App Launcher (the grid icon at the top-left of any page) → REDA Financials AI → the Capital Assets tab and open an asset to see or set its Method, Useful Life and Residual Value; the class defaults live on the Asset Type in the REDA Financials Admin app.
Access you'll need. Any REDA Financials permission set can view these fields on an asset; changing them (or the type's defaults) requires the Accounting Admin v2 or Accounting Controller v2 permission set.

First, the base

Every method works on the depreciable base = Acquisition Cost − Residual Value (what you expect to sell it for at the end). Migrated assets also subtract the depreciation already taken in the old system. Meridian's $5,000 equipment with no residual and a 60-month life: base $5,000.

The fields that drive the charge

Five fields on the asset (each defaulted from the Asset Type at activation if left blank) are the whole input set:

Field	Role in the arithmetic
Depreciation Method	The shape — which formula below applies.
Useful Life (Months)	How many monthly lines the schedule gets, and the divisor for Straight Line.
Residual Value	Subtracted from cost to form the base; reducing-balance methods also refuse to depreciate below it.
Declining Rate	The annual percentage for Declining Balance and Written Down Value (Block). Double Declining computes its own.
In-Service Date	Where month one falls — and, through the convention, how big month one is.

For migrated assets, Opening Accumulated Depreciation joins in: it's netted out of the remaining base (Straight Line) or subtracted from the starting book value (reducing methods), so the new system depreciates only what the old one hadn't.

The methods

Method	Monthly charge	Character
Straight Line	Base ÷ life in months ($5,000 ÷ 60 = $83.33)	Even — the default and the workhorse
Declining Balance	Opening book value × (declining rate ÷ 12)	Front-loaded; the rate comes from the asset (or type default); charges shrink each month and stop at residual
Double Declining Balance	Same mechanics with the rate set to 2 ÷ life-in-years	The classic accelerated method, auto-rated
Written Down Value (Block)	Same reducing-balance mechanics	The WDV convention familiar to Indian block-of-assets practice
Immediate / Full Expense	The whole remaining base, once	Small-value or policy-expensed assets that must still sit on the register
No Depreciation	—	Land and other non-wasting assets
Manual	—	You author the ledger lines yourself — for treatments the engine doesn't model
Units of Production	—	Usage-based charges entered manually per period (the fields to record units exist; the charges are yours to enter as manual ledger lines)

Looking for SYD or MACRS? They're not in the list — sum-of-years-digits is rarely used under modern standards, and MACRS is a US tax computation that lives in tax software. For accelerated books, use Double Declining Balance; for tax-driven first-year expensing, see Bonus & Section 179 Depreciation.

Two methods on the same asset, side by side

Take Meridian's actual numbers — $5,000 cost, no residual, 60 months — and run them through Straight Line versus Double Declining Balance (60 months = 5 years, so DDB's annual rate is 2 ÷ 5 = 40%):

Month	Straight Line	Double Declining Balance
1	$5,000 ÷ 60 = $83.33	$5,000.00 × 40% ÷ 12 = $166.67
2	$83.33	$4,833.33 × 40% ÷ 12 = $161.11
3	$83.33	$4,672.22 × 40% ÷ 12 = $155.74
…	the same, every month	each month 3⅓% of a shrinking book value

Same base, same life, same total — only the timing differs: Straight Line spreads it evenly; DDB expenses more while the asset is new and less as it ages. Declining Balance and Written Down Value (Block) work exactly like the DDB column, except the rate is the one you (or the type) set rather than 2 ÷ life.

Which methods generate lines — and which don't

Three of the methods deliberately generate nothing: No Depreciation, Manual, and Units of Production. For those, any charges are Asset Ledger lines you enter yourself. In particular, Units of Production is a manual discipline end to end: the asset carries fields to record usage (Total Estimated Units, Units Produced YTD, Units This Period), but no engine computes a charge from them — the fields document the measurement, and the monthly ledger line is yours to enter.

The accounts come pre-filled either way. Any Depreciation or Amortization line — generated or hand-entered — defaults its two accounts from the Asset Type: debit Depreciation Expense GL, credit Accumulated Depreciation GL. Manual entries can override the accounts before posting; posting then requires a positive amount and two different accounts, like every Asset Ledger line.

The last month straightens everything

Charges round to cents, so sixty months of $83.33 would drift 20 cents from $5,000. The engine plugs the final period to land the cumulative total exactly on the base — Meridian's schedule runs fifty-nine charges of $83.33 (cumulative $4,916.47) and a final month of $83.53, closing at exactly $5,000.00. Every asset fully depreciates to the penny, no residue — and the series is capped at the base, so nothing ever over-depreciates either.

Common mistakes to avoid

Mistake	Why it hurts	Do this instead
Choosing Units of Production and waiting for charges to appear	Nothing generates — UoP has no computation engine, so NBV sits still while the machine runs	Record the usage and enter each period's charge as a manual Asset Ledger line
Picking Declining Balance without a Declining Rate	The reducing-balance formula has no rate to work with — the method needs its percentage	Set the rate on the asset or the type's Default Declining Rate — or use Double Declining Balance, which derives its own from the life
Using Immediate / Full Expense for material assets	The whole cost hits one period's P&L — technically valid, but a distortion your auditor will question for anything significant	Reserve Immediate for genuinely small-value classes your accounting policy expenses; see Bonus & Section 179 Depreciation for the tax-election version of this idea
Forgetting the Residual Value	The asset depreciates all the way to zero even though you'll sell it — expense overstated every month	Set the residual on the asset, or encode the class's Default Residual % on the type once
Changing a live asset's method casually	Depreciation-policy changes are accounting events with disclosure consequences, not preferences	Treat it as your controller's deliberate, prospective adjustment — posted history stands, the remaining schedule is rebuilt

Choosing, and changing

Choose by pattern of benefit: even service → Straight Line; heavy early use / fast obsolescence → a declining method; land → No Depreciation. Encode the choice on the Asset Type so it's made once.
Changing a live asset is a prospective adjustment: posted history stands; the remaining schedule is rebuilt (impairment and revaluation do this automatically; a deliberate method/life change is done the same way by your controller).

Make the decision once, on the type. Encode each class's method, life, convention and residual on its Asset Type, and every future asset inherits them at activation. Per-asset overrides remain available for the genuine exceptions — but the everyday case should require no depreciation decisions at all.

Where to go next

Depreciation Conventions — the first-month question.
Depreciation Schedule Generation — methods turned into dated lines.
Running the Depreciation Batch — the posting engine.

Frequently asked questions

The asset's Declining Rate field (defaulted from the Asset Type). Double Declining computes its own rate from the useful life — that's the difference between DB and DDB.

Reducing-balance charges approach the residual floor and are capped there — in practice the schedule's plugged final period settles the base exactly, so yes, within the useful life.

Record the period's usage and enter the charge as a manual Asset Ledger line (Depreciation type; the debit/credit accounts default from the Asset Type). It's deliberate work each period — usage-based depreciation is a measurement exercise before it's an accounting one.

It shrinks the base: a $5,000 asset with a $500 residual depreciates $4,500 over its life ($75.00 a month straight-line over 60 months), and reducing-balance methods stop charging when book value reaches the $500 floor. The asset ends its life on the books at its residual, ready to be disposed with proceeds against it.

The base nets out the Opening Accumulated Depreciation — depreciation already taken in the prior system — and reducing methods start from cost minus that opening figure. Practical tip: set the In-Service Date to the migration cutover, since that's the date the forward schedule runs from.

That's the rounding plug: fifty-nine months of $83.33 leaves $83.53 for month sixty so the total lands on exactly $5,000.00. Cents-level and by design — the cumulative column always closes on the base.

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