Pro-rata based depreciation for SLM
In the Accounts Settings of ERPNext, there is a select box that allows users to choose between two options for calculating daily depreciation:
- Total days in depreciation period
- Total years in depreciation period
Depending on the selected option, the system will use one of the following approaches to calculate the daily depreciation amount for assets.
1. Total Days in Depreciation Period
This option calculates depreciation based on the exact number of days over the asset’s entire depreciation period.
How It Works:
Calculate Total Days: The system finds the total number of days from the depreciation start date to the end date by:
Calculate Daily Rate: Once it knows the total number of days, the function divides the total depreciation amount by this number to determine the daily depreciation rate.
Example:
- Asset Cost: 1,096
- Depreciation Period: 3 years (which includes 1 leap year)
- Depreciation Start Date: April 1, 2022
- Total Depreciation Amount: 1,096
- Calculate Daily Rate:
- Total Days: 1,096 days (from January 1, 2024, to January 1, 2027, including 1 leap year)
- Daily Depreciation = Total Depreciation Amount / Total Days
- Daily Depreciation = 1,096 / 1,096 = 1.00
2. Total Years in Depreciation Period
This option calculates depreciation on an annual basis and then divides it down to a daily rate.
How It Works:
- Calculate Total Years: The system first determines how many years the asset will be depreciated.
- Calculate Annual Depreciation: It divides the total depreciation amount by the number of years to find the annual depreciation amount.
- Determine Daily Rate: For each year, the function calculates the number of days in that year and then divides the annual depreciation by that number to get the daily rate.
Example: Using the same asset details as above:
Calculate Annual Depreciation:
- Annual Depreciation = Total Depreciation Amount / Total Years
- Annual Depreciation = 1,096 / 3 ≈ 365.33
Determine Daily Rate:
- The number of days in the years: 365 days for 2 years and 366 days for 1 leap year.
- Daily Depreciation = Annual Depreciation / Days in Year
- For the first two years: Daily Depreciation = 365.33 / 365 ≈ 1.00092
- For the leap year: Daily Depreciation = 365.33 / 366 ≈ 0.9991
