Increasing the Service Life of a Fixed Asset

Increasing the Service Life of an Asset is carried out to revise the estimates done when the Asset was first acquired and increase the periods for depreciation for the Asset.
This change is not an accounting / estimation error. It is an inherent and continual process in a business.

For Example: DAT (Default Company) purchased machinery for $150,000. The company made the following estimates at the time of purchase (Year 1):

• Useful life: 15 years
• Salvage value: $0

Now, during Year 6 – after five (5) years of using and depreciating the machinery – the company understands that the machinery can be used for 15 years more from the date of change (or for a total of 20 years from the date of purchase), rather than the previous estimate. This decision is based on various factors including machine performance and maintenance as well.

In the accounting scenario, the change in depreciation from revision of useful life is calculated as follows (for Journal Entries):

There is no need to undo the previous calculations for depreciation or make any adjustments thereof. The depreciation henceforth would be adjusted based on the formula stated above.

In AX too we have a provision for increasing the Service Life of an asset long after it has been commissioned.

The Setups and prerequisites are as follows:

Prerequisite - Require Reason Code:

Reason Codes urge users to justify/ provide reasons for performing any action in the system. 

Since an increase in the Service Life of an asset has substantial Financial Implications for the business, requisite setups are available in the system to prompt the user to enter the reasons for the Update.

This setup is not mandatory, but suggested. It depends on the Business hierarchy and whether or not these rules are applicable to the scenario.

To enable Reason Codes, check mark the Require Reason Code for Fixed Asset change in General Ledger >> Parameters

Path: General Ledger >> Setup >> Parameters >> Fixed assets tab

The Reason code requirements for transactions are additional transactions for which the reason code needs to be updated. This is optional setup.

Prerequisite - Reason Code Setup:

The Reason code setup is available in the Basic module. This setup is required if Reason Code Requirement is selected in the previous step.

Path: Basic >> Setup >> Reasons

Enter the Reason Code and Default Comment. Check mark the box for Asset.

Click Ctrl+S to save

Now that we have our Reason Codes setup, we can proceed with the update.

Increase Life of FA

Path: General Ledger >> Common Forms >> Fixed Asset Details.

Select the Fixed Asset to increase life for and click on Value Models:

Go to Depreciation Tab:

In the Depreciation header, there are fields for:

• Service Life
• Depreciation Periods
• Depreciation Periods Remaining

These fields can be updated based on the requirement. When the Service Life is increased, the Depreciation Periods and Remaining Periods are automatically updated. When the Depreciation Period is updated, only the Remaining Periods are updated, but the Service Life is not updated.

Make the changes. Click Ctrl + S to save.

The system prompts for Reason Code:

Enter the Reason Code by selecting from the drop-down menu and Click OK

The Updates will be made for the asset.

To view the changes made to an Asset, Click on Inquiries >> Change History in the Value Models form.