Relationships between fixed assets components
The following figure illustrates the relationships of the Fixed assets module in Finance.
Fixed asset groups let you group your assets and specify default attributes for every asset that is assigned to a group. Books are assigned to fixed asset groups. Books track the financial value of a fixed asset over time by using the depreciation configuration that is defined in the depreciation profile.
Fixed assets are assigned to a group when they are created. By default, the books that are assigned to the fixed asset group are then assigned to the fixed asset. Books that are configured to post to the general ledger are associated with a posting profile. General ledger accounts are defined for each book in the posting profile and are used when fixed asset transactions are posted.
You should first set up depreciation profiles. In the depreciation profile, you can configure how the value of an asset is depreciated over time. You need to define the method of depreciation, the depreciation year (calendar year or fiscal year), and the frequency of depreciation.
After you set up depreciation profiles, you need to create the required books for your assets. Each book tracks an independent financial lifecycle of an asset. Books can be configured to post associated transactions to the general ledger. This configuration is the default setting because it's typically used for corporate financial reporting. Books that don't post to the general ledger post only to the Fixed asset subledger and are typically used for tax reporting purposes.
A primary depreciation profile is assigned to every book. Books also have an alternative or switchover depreciation profile, if this type of profile is applicable. To automatically include the fixed asset book in depreciation runs, enable the Calculate depreciation option.
An alternative depreciation profile is also known as a switchover method of depreciation. The depreciation proposal will switch to this profile when the alternative profile calculates a depreciation amount that is equal to or greater than the default depreciation profile.
The Extraordinary depreciation profile is used for additional depreciation of an asset in unusual circumstances. For example, you might use this to record depreciation that results from a natural disaster.
If the Create depreciation adjustments with basis adjustments option is selected, depreciation adjustments will be automatically created when the value of the asset is updated. If it is not selected, the updated asset value will only affect depreciation calculations going forward.
If this option isn't enabled for an asset, the depreciation proposal skips the asset.
You can also set up derived books. The specified derived transactions are posted against the derived books as an exact copy of the primary transaction. Therefore, derived transactions are typically set up for acquisitions and disposals, not for depreciation transactions.
After you set up books, you can create the posting profile. The posting profile must be defined by book, but it can also be defined at a more detailed level. For example, you can define the posting profile for the combination of a book and a fixed asset group, or even for an individual fixed asset book. By default, the ledger accounts that are defined are used for your fixed asset transactions.
You need to define the ledger accounts that are used during the disposal processes, both disposal sales and disposal scraps. At the time of disposal, the fixed asset transactions that were previously posted are reversed out of the original accounts. The net amounts are then moved to the appropriate account for gain and loss for asset disposal.
To help guarantee that transactions are correctly reversed, set up accounts for each type of transaction that you use in your business. The main account should be the original account that you set on the posting profile for the transaction type, and the offset account should be your gain and loss for disposal account. The exception is the net book value. In this case, both the main account and the offset account should be set to the gain and loss for disposal account.