This article provides information about reduction entries for fixed assets and how to set them up in Microsoft Dynamics 365 for Finance and Operations, Enterprise edition. Reduction entries are a special accounting treatment for fixed assets that you acquire by using a government subsidy. You can use them to defer the corporate income tax for those assets throughout their service life.
When you acquire a fixed asset by using a government subsidy, the subsidy is treated as taxable revenue. However, if you account for the whole government grant as revenue, the result is a large amount of corporate income tax, which reduces the subsidizing effect of the grant. Therefore, a special accounting treatment called a reduction entry is permitted. Basically, reduction entries defer the corporate income tax throughout the service life of the fixed asset that is acquired. Two types of accounting treatment are allowed:
- Direct-off method – The amount of the government subsidy is deducted directly from the acquisition cost of the fixed asset.
- Reserve method – The amount of the government subsidy is maintained as a separate value on the equity side of the balance sheet. The government subsidy amount doesn't affect the net book value of the fixed asset.
You can set up a fixed asset posting profile for reduction entries. You can also set up accounts for the transactions of the Disposal type. The transaction amounts are retrieved from these accounts when you post a fixed asset with a reduction entry.
The following table shows the prerequisites that must be in place before you start.
|Country/region||The primary address for the legal entity must be in Japan. Alternatively, the localized functionality region for the legal entity must be in Japan.|
|Related setup tasks||
Finance and Operations implements the reduction entry feature on top of existing fixed asset features. To use reduction entries, you must complete the following tasks in addition to using the existing fixed asset features.
Assigning a reduction entry document to a fixed asset book
Use the Fixed assets page to assign a reduction entry document to a fixed asset.
Assigning a reduction entry document to multiple fixed asset books
Use the Mass update for reduction entry document page to assign a reduction entry document to multiple fixed assets.
Setting up a fixed asset posting profile for reduction entries
Use the Fixed asset posting profiles page to set up a posting profile for reduction entries. You can also set up a posting profile to depreciate the asset that is applied with a reduction entry.
Depreciate fixed assets with reduction entry posted
Create and assign a reduction entry document for a government grant subsidy
Dispose of a fixed asset with reduction entry
Technical information for system administrators
If you don't have access to the pages that are used to complete this task, contact your system administrator, and provide the information that is shown in the following table.
|Configuration keys||Make sure that the Asset configuration key is available under the Data Dictionary > Configuration Keys node.|