Depreciation
Complete guide to depreciation methods, schedule processing, and multi-book accounting in NetSuite Fixed Asset Management.
Overview
DEPRECIATION CONCEPT
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Acquisition Cost: $100,000
Residual Value: $10,000
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Depreciable Base: $90,000 (amount to be depreciated)
Useful Life: 10 years
Year 1 Year 2 Year 3 ... Year 10
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Depreciation: $9,000 $9,000 $9,000 ... $9,000
Accum Depr: $9,000 $18,000 $27,000 ... $90,000
Net Book Value: $91,000 $82,000 $73,000 ... $10,000
Depreciation Methods
Method Comparison
| Method | Pattern | Best For |
|---|---|---|
| Straight Line | Even | General purpose |
| Fixed Declining | Accelerated | Equipment |
| Double Declining | Accelerated | Vehicles |
| Sum of Years' Digits | Accelerated | Technology |
| Units of Production | Usage-based | Manufacturing |
Straight Line
The most common method - distributes cost evenly over useful life.
STRAIGHT LINE DEPRECIATION
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Formula:
Annual Depreciation = (Cost - Residual) / Useful Life
Example:
Asset Cost: $50,000
Residual: $5,000
Life: 5 years
Annual Depr = ($50,000 - $5,000) / 5 = $9,000/year
Year Depreciation Accum Depr NBV
──── ──────────── ────────── ────────
1 $9,000 $9,000 $41,000
2 $9,000 $18,000 $32,000
3 $9,000 $27,000 $23,000
4 $9,000 $36,000 $14,000
5 $9,000 $45,000 $5,000 (residual)
Declining Balance
Accelerated method - higher depreciation in early years.
DECLINING BALANCE (FIXED RATE)
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Formula:
Annual Depreciation = NBV × Depreciation Rate
Example (20% rate):
Asset Cost: $50,000
Rate: 20%
Residual: $5,000
Year NBV Start × Rate Depreciation NBV End
──── ───────── ────── ──────────── ────────
1 $50,000 20% $10,000 $40,000
2 $40,000 20% $8,000 $32,000
3 $32,000 20% $6,400 $25,600
4 $25,600 20% $5,120 $20,480
5 $20,480 20% $4,096 $16,384
...
Note: Switches to straight-line when beneficial to reach residual
Double Declining Balance
DOUBLE DECLINING BALANCE
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Formula:
Rate = (1 / Useful Life) × 2
Annual Depreciation = NBV × Rate
Example:
Asset Cost: $50,000
Life: 5 years
Rate: (1/5) × 2 = 40%
Year NBV Start × Rate Depreciation NBV End
──── ───────── ────── ──────────── ────────
1 $50,000 40% $20,000 $30,000
2 $30,000 40% $12,000 $18,000
3 $18,000 40% $7,200 $10,800
4 $10,800 40% $4,320 $6,480
5 $6,480 40% $1,480* $5,000
*Adjusted to reach residual value
Sum of Years' Digits
SUM OF YEARS' DIGITS
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Formula:
SYD = n(n+1)/2 (where n = useful life)
Annual Depr = (Cost - Residual) × (Remaining Life / SYD)
Example:
Asset Cost: $50,000
Residual: $5,000
Life: 5 years
SYD: 5+4+3+2+1 = 15
Depreciable: $45,000
Year Remaining Fraction Depreciation NBV
──── ───────── ──────── ──────────── ────────
1 5 5/15 $15,000 $35,000
2 4 4/15 $12,000 $23,000
3 3 3/15 $9,000 $14,000
4 2 2/15 $6,000 $8,000
5 1 1/15 $3,000 $5,000
Units of Production
UNITS OF PRODUCTION (USAGE-BASED)
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Formula:
Rate per Unit = (Cost - Residual) / Total Expected Units
Depreciation = Units Used × Rate per Unit
Example:
Asset Cost: $100,000
Residual: $10,000
Expected Units: 100,000 machine hours
Rate: $0.90 per hour
Year Hours Used × Rate Depreciation NBV
──── ────────── ────── ──────────── ────────
1 25,000 $0.90 $22,500 $77,500
2 30,000 $0.90 $27,000 $50,500
3 20,000 $0.90 $18,000 $32,500
4 15,000 $0.90 $13,500 $19,000
5 10,000 $0.90 $9,000 $10,000
Benefits:
- Matches expense to usage
- Fair for seasonal operations
- Accurate for variable use assets
Depreciation Conventions
First-Year Conventions
| Convention | Rule | Example |
|---|---|---|
| Full Month | Full month in month acquired | Jan 15 = full January |
| Mid-Month | Half month in month acquired | Jan 15 = half January |
| Full Year | Full year in year acquired | Any date = full year |
| Half Year | Half depreciation in first year | Any date = 50% first year |
| Mid-Quarter | Based on quarter acquired | Varies by quarter |
Convention Example
MID-MONTH CONVENTION
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Asset acquired: January 15, 2026
Annual depreciation: $12,000 ($1,000/month)
First year: 11.5 months
January: $500 (half month)
Feb-Dec: $11,000 (11 full months)
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Year 1: $11,500
Year 2+: $12,000 (full year)
Multi-Book Accounting
Book vs. Tax Depreciation
MULTI-BOOK DEPRECIATION
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Same asset, different depreciation for different purposes:
BOOK (GAAP) TAX (IRS)
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Method: Straight Line MACRS
Life: 10 years 7 years
Convention: Mid-Month Half-Year
Asset: $100,000 Equipment
Year Book Depr Accum Book Tax Depr Accum Tax
──── ───────── ────────── ──────── ─────────
1 $10,000 $10,000 $14,290 $14,290
2 $10,000 $20,000 $24,490 $38,780
3 $10,000 $30,000 $17,490 $56,270
4 $10,000 $40,000 $12,490 $68,760
5 $10,000 $50,000 $8,930 $77,690
6 $10,000 $60,000 $8,920 $86,610
7 $10,000 $70,000 $8,930 $95,540
8 $10,000 $80,000 $4,460 $100,000
9 $10,000 $90,000 $0 $100,000
10 $10,000 $100,000 $0 $100,000
Configuring Alternate Methods
ALTERNATE (TAX) METHOD SETUP
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On Asset Type or Asset Record:
PRIMARY METHOD (Book):
┌────────────────────────────────────────────────────────┐
│ Method: Straight Line │
│ Life: 10 Years │
│ Convention: Mid-Month │
└────────────────────────────────────────────────────────┘
ALTERNATE METHOD (Tax):
┌────────────────────────────────────────────────────────┐
│ Method: MACRS │
│ Life: 7 Years │
│ Convention: Half-Year │
└────────────────────────────────────────────────────────┘
Result: Two parallel depreciation schedules maintained
Running Depreciation
Depreciation Run Process
MONTHLY DEPRECIATION PROCESS
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1. Navigate to:
Fixed Assets > Processing > Depreciation
2. Select Parameters:
┌────────────────────────────────────────────────────┐
│ Subsidiary: All / Specific │
│ Asset Type: All / Specific │
│ Period: January 2026 │
│ Method Type: ○ Primary Only │
│ ○ Alternate Only │
│ ● Both │
└────────────────────────────────────────────────────┘
3. Click "Preview" to review
4. Click "Run Depreciation"
5. System creates Journal Entries:
Depreciation Expense $XX,XXX Dr
Accumulated Depreciation $XX,XXX Cr
Depreciation Schedule
DEPRECIATION SCHEDULE VIEW
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Asset: CNC Machine
Method: Straight Line
Life: 10 years
Monthly Depreciation: $750
Period Depreciation Accum Depr NBV
────────── ──────────── ────────── ────────
Jan 2026 $750 $750 $89,250
Feb 2026 $750 $1,500 $88,500
Mar 2026 $750 $2,250 $87,750
Apr 2026 $750 $3,000 $87,000
...
Dec 2026 $750 $9,000 $81,000
Jan 2027 $750 $9,750 $80,250
...
Dec 2035 $750 $90,000 $10,000 (residual)
Depreciation Stops and Pauses
When Depreciation Stops
| Scenario | Depreciation Status |
|---|---|
| End of useful life | Stops automatically |
| Asset fully depreciated | Stops at residual |
| Asset disposed | Stops on disposal date |
| Asset suspended | Pauses until resumed |
Suspending Depreciation
SUSPEND DEPRECIATION
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Use cases:
- Seasonal equipment (idle periods)
- Major repairs/refurbishment
- Temporary non-use
Process:
1. Open asset record
2. Change status to "Suspended"
3. Enter suspension date
4. Depreciation pauses
To resume:
1. Change status to "Active"
2. Enter resume date
3. Depreciation continues where left off
Custom Depreciation Methods
Creating Custom Methods
CUSTOM METHOD SETUP
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Navigate to:
Setup > Accounting > Fixed Asset Management > Depreciation Methods
Create new method:
┌────────────────────────────────────────────────────────┐
│ Method Name: 150% Declining Balance │
│ Method Type: Declining Balance │
│ Rate: 150% │
│ Switch to SL: Yes (when beneficial) │
└────────────────────────────────────────────────────────┘
Best Practices
Depreciation Management
| Practice | Recommendation |
|---|---|
| Consistent timing | Run depreciation same time each month |
| Before close | Complete depreciation before period close |
| Review schedules | Verify schedules before running |
| Audit records | Maintain documentation for changes |
Common Issues
| Issue | Cause | Solution |
|---|---|---|
| Missing depreciation | Period not selected | Run for missed period |
| Wrong amount | Incorrect setup | Adjust asset record |
| Duplicate entries | Ran twice | Reverse duplicate JE |
| Can't run depreciation | Period closed | Reopen period or adjust |
Related Topics
- Asset Types - Depreciation defaults
- GL Impact - Depreciation journal entries
- Reporting - Depreciation schedule reports