How D365 can Help Track Medical Equipment Depreciation

Posted on: January 17, 2022 | By: Guy Logan | Microsoft Dynamics AX/365, Microsoft Dynamics Manufacturing

Tracking medical equipment depreciation is important as the average hospital spends about $11.9 million on medical equipment per year and depreciation allows you to reduce the amount of taxes owed in a year or over a period of years. Understanding equipment depreciation can help you decide how to finance your company’s next major purchase. Read this blog to learn the basics about how Microsoft Dynamics 365 can help track fixed asset depreciation.

Depreciation is a periodic transaction that typically reduces the value of the fixed asset on the balance sheet because of wear and tear due to use or passing of time, and is charged as an expenditure to a profit and loss account. There are two accounts used to track depreciation: a main account is typically used to credit the periodic depreciation on the balance sheet and an offset account is an account in the profit and loss part of the chart of accounts.

In this blog, we will cover four main points about depreciation: depreciation adjustment, extraordinary depreciation, special depreciation allowance, and depreciation calendars.

Depreciation adjustment

Medical equipment lasts for an average of 5-10 years. With a lifespan that long, sometimes it’s hard to accurately assess the salvage value in the early years. Therefore, oftentimes an adjustment in depreciation value is needed. A correction to a posted depreciation transaction is posted as a depreciation adjustment. Therefore, both the main account and the offset account are set up just like the accounts for depreciation. A depreciation adjustment can be either a positive amount or a negative amount, but the functionality of the main account (as a balance sheet account) and the functionality of the offset account (usually as a profit and loss account) remain the same.

Extraordinary depreciation

Extraordinary depreciation works like basic depreciation except this is used when the value of a fixed asset has changed as a result of extraordinary circumstances. For example, if the radiology room caught on fire and the x-ray machines were burned, that would be an example of when to use extraordinary depreciation.

The main account is used to credit the depreciation amount to the balance sheet and reduce the value of the fixed asset. An offset account is a profit and loss account, where the depreciation that is calculated for the fiscal period is charged as an expenditure.

Extraordinary depreciation works independently of basic depreciation. By having extraordinary depreciation as a separate transaction type, you can post and report the extraordinary depreciation separately from the basic depreciation.

Special depreciation allowance

You can use special depreciation allowances to take extra depreciation amounts during the first year that an asset is put in service and depreciated. It permits you to deduct 50% of the depreciation in the year the asset is placed in service. Generally, this rule can be applied to assets with 20 years or less useful life. Medical equipment generally needs to be replaced or upgraded every 5-10 years.

Special depreciation allowances must be taken before any other depreciation calculations. Because special depreciation allowances are often unknown until later in the service life of the fixed asset, it’s best to use this type of depreciation with a book that doesn’t post to the general ledger. You can use the delete transactions not posted to the general ledger periodic function to delete the transaction history for these books. You can then delete the depreciation history for the fixed asset book, post the special depreciation allowance when it’s known, and then post the remaining depreciation transactions for the year.

You can create an unlimited number of special depreciation allowance records. After you assign those records to an asset group book, they are applied to the asset book.

A special depreciation allowance is entered as either a percentage or a fixed amount. When you post depreciation proposals, special depreciation allowance transactions are posted to the book as transactions that are separate from the depreciation transactions.

Depreciation calendars

Each book has a calendar that is used when you depreciate fixed assets. By default, if you don’t indicate a calendar on the book, the book uses the ledger fiscal calendar. You must select a fiscal calendar for a book when the depreciation profile that is associated with the book uses a fiscal depreciation year.

You can create shared calendars by using the Fiscal calendars page in General ledger.

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