Change in Useful Life 

If an asset is moved from one department to another, often the useful life of that asset must be changed.

A PC is transferred from the R&D department to the accounting department. The useful life of that asset in the R&D department was 3 years and in the accounting department the useful life is 5 years. The PC was purchased for 3,000,000 KRW in 1995 and the transfer from the R&D department to the accounting department takes place in May 1996.

Depreciation calculation:

a) The PC is depreciated using a straight-line method:

year

1995

1996

1997

depreciation amount

1,000,000 KRW

766,666 KRW

600,000 KRW

NBV

2,000,000 KRW

1,233,333 KRW

.....

The depreciation for 1996 is calculated as follows:

Jan-May: (3,000,000 KRW / 36 months) * 5 months = 416,666 KRW

Jun-July: (3,000,000 KRW / 60 months) * 7 months = 350,000 KRW

= 766,666 KRW

The depreciation for 1997 is calculated as follows:

3,000,000 KRW / 5 years = 600,000 KRW

This type of transaction can be achieved by an asset transfer posting,

b) The PC is depreciated using a declining-balance method

year

1995

1996

1997

depreciation amount

1,896,000 KRW

504,206 KRW

269,907 KRW

NBV

1,104,000 KRW

599,794 KRW

.....

The depreciation for 1996 is calculated as follows:

Jan-May: (3,000,000 KRW * 0.632) /12 * 5 months = 290,720 KRW

New base value: 1,104,000 - 290,720 = 813,280 KRW

June-July: (813,280 KRW / * 0.450)/12 * 7 months = 213,486 KRW

= 504,206 KRW

The depreciation for 1997 is calculated as follows:

599,794 KRW / * 0.450 = 269,907 KRW

The depreciation method assigned to the receiving asset master record must use the base value key ‘27’. This base value key provides the net book value at the time of the transfer as basis for the calculation of the depreciation (in the example 813,280 KRW).

The depreciation key ‘24’ would give a wrong result, since it would calculate the net book value at the start of the fiscal year as base value for the depreciation ( in the example 1,104,000 KRW).