This post covers Production Based Depreciation in Fixed Assets from our Oracle EBS (R12) Financial Functional training, where we have a dedicated module on Fixed Assets.
Lets first understand what is Depreciation? The reduction of recorded cost of a fixed asset in a systematic manner until the value of the asset becomes zero or negligible.
An example of fixed assets are buildings, furniture, office equipment, machinery etc.. A land is the only exception which cannot be depreciated as the value of land appreciates with time.
Production Based Depreciation in Fixed Assets
For specific types of assets, the depreciation of the assets are charged on the basis of total production done using the given asset (machine) rather than the total time elapsed.
For example, in plants and factories where dye machine is used, the depreciation of the dyes is charged based on the total number of sprays made rather than the number of periods used.
Thus, for fixed assets (machines or tools) whose life is determined on the total number of production possible from the machine rather than a given period.
Oracle eBS provides the functionality to define fixed assets with depreciation rules based on units of production possible and the actual number of production done in a given period.
To determine depreciation based on depreciation, define a depreciation with “Production” method for depreciation.
Once the depreciation method is defined, create a fixed asset with production based depreciation method.
On the fixed asset, provide the total unit of production.
Make sure the Units of Measures are already defined in UOM window in Fixed Assets responsibility.
If the UOM class is not defined, define it in Class window.
Once the UOM is defined, create the asset.
Here, in the example above, the asset is assigned with production-based depreciation. The total number of production units possible for the asset is 500 units.
Now for the period in which depreciation is to be charged, enter the number of units produced using the machine, in the “Periodic Production” window in Fixed Assets responsibility.
In the above example, 100 units of production is entered for the May period.
Total number of production units possible was 500. Hence, for the may period, (100/500 = ) 20% of cost will be depreciated.
Since, the cost was 12000, (20% of 12000 =) 2400 amount will be charged as depreciation in the May-18 period.
This post is from our Oracle EBS (R12) Financial Functional Training, in which we cover General Ledger (GL), Account Payables (AP), Account Receivables (AR), Sub-Ledger Accounting, Fixed Assets, Cash Management and much more.
Related/Further Readings
- Depreciation Calculation for the Units of Production Method
- Automatic Offset Accounting for Accounts Payables (AP)
- General Ledger (GL) Translation in EBS (R12)
- Assets FAQ: Depreciation (Doc ID 69386.1)
- E1: 12: How to Set Up Units of Production Depreciation and the Units of Production Close (Doc ID 1569472.1)
- Our Course Oracle EBS (R12) Financial Functional
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