In Sage 50 Accounts Professional, you can set up fixed asset records in the and post depreciation automatically when you run your month end. You can choose from the depreciation methods below. If you're not sure which method to use, you should check with your accountant. If you don't use fixed asset records or if you want to use a different depreciation method you can post manual journals.

 

TIP: The current value of an asset is called its book value.

Straight line depreciation

The asset's value is reduced by a fixed percentage of the cost price every year until it reaches zero.

	Cost price £/€	Annual depreciation rate %	Annual depreciation amount £/€	New book value £/€
Year 1	10,000	25	2,500	7,500
Year 2	10,000	25	2,500	5,000
Year 3	10,000	25	2,500	2,500
Year 4	10,000	25	2,500	0

The Fixed Assets Register calculates straight line depreciation on a monthly basis using the following calculation:

Formula	Monthly depreciation value = Cost price x (Annual depreciation rate / 100) / 12
Excel formula	=Cost price*(Annual depreciation rate/100)/12

Example

Cost price	£/€10,000
Method	Straight
Annual depreciation rate	25%

Monthly depreciation = 10,000 x (25/100) / 12 = 208.33

Reducing balance depreciation

You can use this method to depreciate an asset by a fixed percentage each year based on the book value. The book value never reaches zero, but for practical purposes, you can write off the asset at a certain value or after a set period of time, often referred to as the scrap value.

For example, if you have an asset worth £/€10,000 which depreciates at the rate of 25% a year, the annual depreciation calculation using this method is as follows:

	Current book value £/€	Annual depreciation rate %	Annual depreciation amount £/€	New book value £/€
Year 1	10,000	25	2,500	7,500
Year 2	7,500	25	1,875	5,625
Year 3	5,625	25	1,406	4,219
Year 4	4,219	25	1,055	3,164

The reducing balance method takes longer than the straight line method to depreciate an asset using the same annual depreciation rate. In this example, after four years the asset is written off by the straight-line method, but using reducing balance it has a remaining book value of £/€3164.

The Fixed Assets Register calculates reducing balance depreciation on a monthly basis using the following calculation:

Formula	Monthly depreciation = (Current book value) x (1 - (1 - Annual depreciation rate / 100) 1/12)
Excel formula	=Current book value*(1-(POWER((1-(Annual depreciation rate/100)),1/12)))

To help you, we've simplified the formula for the most commonly used depreciation rates:

Depreciation rate	Equation
5%	Monthly depreciation = Current book value x 0.004265319
7.5%	Monthly depreciation = Current book value x 0.006475737
10%	Monthly depreciation = Current book value x 0.008741611
12.5%	Monthly depreciation = Current book value x 0.011065933
15%	Monthly depreciation = Current book value x 0.013451947
20%	Monthly depreciation = Current book value x 0.01842347
25%	Monthly depreciation = Current book value x 0.023688424
33%	Monthly depreciation = Current book value x 0.032822391

Example

Cost Price	£/€10,000
Method	Reducing
Annual depreciation rate	25%

To manually calculate the depreciation

1. Calculate the depreciation rate as a decimal value, in this example, this is 25/100 = 0.25
2. 1 - 0.25 = 0.75
3. 0.75 to the power of 1/12 = 0.976311575
   
   To calculate this on a scientific calculator enter 0.75 > press x^y > enter (1 / 12) > press =.
   
   
4. 1 - 0.976311575 = 0.023688425
5. Current Value of Asset x 0.023688425 = £/€236.88
   
   Therefore, the depreciation for the asset in Month 1 is £/€236.88
   
   Using the same formula, the following month's depreciation is:
   
   Current Value of Asset (10,000 – Month 1 depreciation) x 0.023688425
   
   That is, 9,763.12 x 0.023688425 = £/€231.27
   
   NOTE: Once you calculate the value in step 4, it's the same every month. Therefore you simply multiply the current book value by the calculated value.
   
   

   	Year 1
   Month	Book Value	Monthly Depreciation
   1	9763.12	236.88
   2	9531.84	231.27
   3	9306.05	225.79
   4	9085.60	220.45
   5	8870.38	215.22
   6	8660.25	210.13
   7	8455.11	205.15
   8	8254.82	200.29
   9	8059.27	195.54
   10	7868.36	190.91
   11	7681.97	186.39
   12	7500.00	181.97
   Annual Total:	-	2500.00

Write off

This method is used to reduce the book value to zero and increase the depreciation expense. For example, if the current book value of the asset is £/€500, the posting is:

N/C	Name	T/C	Debit	Credit
0051	Motor Vehicles Depreciation	T9		500.00
8003	Motor Vehicle Depreciation	T9	500.00

Post depreciation automatically

If you use Sage 50 Accounts Professional, once you set up your fixed asset records in the software , you can post depreciation automatically using the Month End option.

1. Set up your fixed asset records, including the depreciation method details. For help with this, please refer to article .
2. Run check data then take a backup of your data.  
3. Click Tools then Period End then Month End.
4. Set Month End Date then enter the relevant month end date.
5. To include depreciation in your month end postings, select the Include depreciation of fixed assets check box.
6. Select any other required options then click Run Month End then Yes then OK.

This posts the depreciation amounts as journal entries and updates your fixed asset records.

Post depreciation manually

There are several reasons why you may want to calculate and post your depreciation charges manually. For example, if you don't use the Fixed Assets Register, or you want to post depreciation annually or you use a different depreciation method.

NOTE: You should record the purchase of an asset before you post depreciation. This is no different to other purchases, you can record this as an invoice to the fixed asset nominal code.

Create the depreciation nominal codes

The default depreciation nominal codes are as follows. If you already have these nominal codes, then please proceed to the section To post the depreciation journals.

TIP: You can see your nominal codes in Modules > Nominal Ledger.

Nominal Code	Nominal name	Report	Report section
0021	Plant/Machinery Depreciation	Balance Sheet	Fixed Assets
0031	Office Equipment Depreciation	Balance Sheet	Fixed Assets
0041	Furniture/Fixture Depreciation	Balance Sheet	Fixed Assets
0051	Motor Vehicles Depreciation	Balance Sheet	Fixed Assets
8001	Plant/Machinery Depreciation	Profit and Loss	Overheads
8002	Furniture/Fitting Depreciation	Profit and Loss	Overheads
8003	Vehicle Depreciation	Profit and Loss	Overheads
8004	Office Equipment Depreciation	Profit and Loss	Overheads

1. Click Nominal codes then New/edit.
2. Complete the following information:
   
   

   N/C	Enter the nominal code number that you want to create, for example, 8001.
   Name	Enter the name of the account, for example, Plant/Machinery Depreciation.

3. Click Save.
4. If required, to create further nominal codes repeat steps 1 to 3.
5. Click Close.

You've now created the new nominal codes. You should now check the chart of accounts to ensure the new nominal codes are included in the relevant sections of the profit and loss and balance sheet reports. For more information about this, please refer to article .

Post the depreciation journals

1. Click Nominal codes then Journal entry.
2. Enter a reference and date for your depreciation posting > enter the relevant details for your journal entry.
   
   NOTE: Post a debit for any profit and loss depreciation charges and post a credit for any balance sheet depreciation charges.
   
   For example, to post £/€50.00 for motor vehicle depreciation, you should enter the following information:
   
   

   N/C	Name	Details	T/C	Debit	Credit
   8003	Motor Vehicle Depn (Profit & Loss)	Depreciation charge	T9	50.00
   0051	Motor Vehicle Depn (Balance Sheet)	Depreciation charge	T9		50.00

3. Save > Close.

 

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