How Oracle Assets Calculates Depreciation in a Short Tax Year

To depreciate assets properly in a short tax year, Oracle Assets needs to account for the acquired assets up to the date on which the assets are converted to the acquiring company's Oracle Assets system. When adding assets that will depreciate in a short tax year, you must enter a conversion date and original depreciation start date, and check the Short Fiscal Year check box on the Books window.

Note: The prorate date is determined by the date placed in service and the prorate convention. If the original prorate convention is different from that in the acquiring company, you may need to set up a new prorate convention for the converted assets to map the prorate date correctly.

The conversion date is the date an asset begins depreciating under the acquiring company's Oracle Assets system. Therefore, the year-to-date depreciation is zero at that time. The conversion date enables Oracle Assets to calculate the remaining life of the asset. You must choose a conversion date in the current open period of the corporate and tax books. Otherwise, the depreciation calculations may be incorrect. You cannot enter a conversion date in a past fiscal year or in future periods.

Note: Oracle Assets does not calculate any depreciation before the conversion date. You must enter the total depreciation taken (depreciation reserve) up to the conversion date.
Depreciation in a short tax year is calculated as follows:

Depreciable Basis * Annual Rate * No. of Months in Short Tax Year / No. of Months in the Full Tax Year

If the depreciation method has a calculation basis of NBV, the value of the depreciable basis is the net book value (NBV) as of the conversion date. The NBV is derived from the depreciation reserve.

MACRS Deductions in a Short Tax Year
You can define a formula-based MACRS depreciation method to calculate depreciation in a short tax year. For example, you could define a MACRS method with a straight-line switch as follows:
Greatest (2/Life, Decode (Short Year, 1, 1/Remaining Life 1, 0, 1/ Remaining Life 2)) In this example, Decode means the following: if the current year is a short tax year, then use Remaining Life 1. Otherwise, use Remaining Life 2.

• Remaining Life 1 : Oracle Assets calculates the remaining life of the asset as of the conversion date or prorate date, which ever is later. If the prorate date is later than the conversion date, Oracle Assets calculates the remaining life based on the prorate date to avoid over-depreciating the asset.
• Remaining Life 2 : Oracle Assets calculates the remaining life of the asset as of the first day of the fiscal year of the acquiring company, after the conversion date.