Automating depreciation calculations. (fixed asset accounting and depreciation softwares) (Evaluation)by Plostock, Mark A.
Enter TRA 81 and its Accelerated Cost Recovery System (ACRS). Since 1981, almost every piece of tax legislation has tinkered with the provisions affecting depreciation and fixed asset maintenance, all in the name of simplication and fairness, but primarily at the expense of the taxpayer in order to make other changes to the tax law revenue neutral. Each change in itself was relatively straightforward. But the cumulative effect over these past years, with the introduction of separate depreciation calculations for AMT and ACE, has seriously complicated what was once a relatively simple task.
The saving grace, if there is one, is that computer technology has stepped forward to assist in dealing with the complications that the last decade of tax depreciation changes has wrought. Comprehensive fixed asset software is available and is becoming a much requested program for CPAs and accountants both in public practice and in private industry.
The use of the microcomputer for depreciation calculations no doubt began with electronic spreadsheet programs, which can effectively make rudimentary depreciation calculations. But the tax law changes have outpaced the ability for most accountants to write macros for Lotus 1-2- 3 and Excel to make all the calculations. As a result, the CPA must now turn to the sophistication of specialized fixed asset and depreciation software.
There is a wide variety of features incorporated into the fixed asset packages available on the market today. Presented herein is a detailed review of four packages to help CPAs understand the capabilities and features currently available. While the discussion will present some insight into the specific packages, more importantly, it will provide a benchmark for evaluating the many other good products available.
The four packages reviewed are: 1) AICPA Depreciation, released by the AICPA; 2) FAAS (Fixed Asset Accounting System) from Crowe, Chizek & Company; 3) FAS2000, a product of Best Programs; and 4) Fixed Assets by Total Computer Solutions. Exhibit 1 presents a detailed scorecard of the available features of each of these packages.
Exhibit 2 presents a list of additional fixed assets packages available but not reviewed in this article.
As with any computer program there are certain features that stand out when making a selection. Certainly ease of use is a high priority. Does the software follow the flow of the transaction as if it were being done manually, and is it intuitive? Are the functions keys easy to access and do they follow industry standards (F1 for context-sensitive help)? Are the screens easy to view, especially for extended periods?
The first section of Exhibit 1 indicates that all the packages require an IBM, AT, PS/2, or compatible machine. FAS2000 requires a minimum configuration of an 80286 processor while all the other programs were designed to operate with the older 8088 chip. With the complexity and database orientation of the programs, however, it is highly recommended that at least 80286 machines be used. But, even an 80386 machine should be seriously considered.
Another important feature to look for is the ability to run the program on a network. More and more accounting firms are networking their in-house micros, and networks in industry are proliferating. All the packages reviewed were able to run on industry-leading Novell Netware. With the exception of FAS2000, all of the packages ran with 3 Com, IBM Token Ring, and Lantastic network operating systems.
The usefulness of accounting application software can be enhanced by its ability to look at the data in the system from different levels. For a fixed asset application the coding assigned to each asset will provide the flexibility to allow for many levels of information and analysis. Accordingly, the asset code should be of sufficient size to include identification of type of property, location, and division or department. The use of subclasses will give added flexibility to sort the data to different levels, for example, to identify all computers in the sales division by city.
The essential ingredient of any fixed asset software would be its ability to handle the multiplicity of tax requirements. Exhibit 1 identifies the numerous depreciation methods that may be required of taxpayers along with the conventions for computing depreciation in the year an asset is acquired.
The list of possible depreciation methods is an indication of the complexity of the taxing system. The first-year conventions are an extension of that complexity. A fixed asset system must now be able to monitor and accumulate year-to-date information with respect to acquisitions during the year to establish the correct convention to apply to the acquired asset.
The convention determines the point at which depreciation begins in the year an asset is initially placed in service as well the depreciation to be allowed in the year of disposition.
Today's fixed asset programs should have the ability to address the following conventions: Full year Half year Mid-month Full month Mid- quarter
The good news is that all the packages reviewed were able to handle the various methods for calculating depreciation and all the conventions. The programs should also be able to handle the proration of depreciation for a short tax year.
Seprating Book from Tax from
AMT from ACE
The computerized fixed asset packages have coined the word "book" to mean the ability to track individual assets in several ways. The range of books would include the following purposes: financial statements (GAAP), regular federal tax, AMT, ACE tax, and state and local taxes. All the reviewed programs were able to maintain the full range of books with the exceptions of TCS Fixed Assets which has the capacity for four books. In some cases, the four would be more than adequate, and there may be ways to provide the information for more books if necessary. FAS2000 provides two additional books to track miscellaneous information about the various assets, not necessarily depreciation related.
Data Entry and Transferability
Probably the most time consuming function in any of these fixed asset systems is getting the data entered into the system. Importing data about assets into the system from either an ASCII (pure text file) or Lotus 1-2-3 file would certainly speed up the data entry. It was surprising that more programs did not incorporate this importing function in their packages. Exporting the data would give the user the ability to manipulate the data even further in either a database or a spreadsheet program.
The reporting in all of the packages was quite adequate with a great deal of flexibility in tax and financial reporting because of the degree of sorting and querying that can be accomplished. None of the packages printed on facsimile tax return forms but certainly gave all the necessary information that could be transferred to the final government forms. If the reports that are produced by the system or the files that have been transferred to a spreadsheet or database are not enough, FAS2000 has a built-in report writer. FAAS and Fixed Assets have report writer options available at additional cost.
Telephone support is available for all the programs reviewed. Maintenance agreements, which provide support and upgrade for new releases because of tax law changes or program enhancements, are available from all vendors.
Other miscellaneous considerations when choosing software include:
* Investment Credit Accounting. The availability of federal investment tax credits has been absent for several years, but there are still tax implications that can arise. The software should have the ability to track the basis reduction and the credit reduction on older assets.
* Automobile Depreciation. The IRC and regulations place many limitations on the depreciation of automobiles purchased after June 18, 1984. Does the program handle all of the luxury automobile limitations automatically, based upon acquisition date?
* Sec. 179 Expense. Present tax regulations allow up to $10,000 per year of acquisition cost of certain assets to be taken as a direct expense. There is a phase-out dollar for dollar for purchases over $200,000. Consequently, any asset placed in service in excess of $210,000 will not be eligible for this deduction. How does the program treat these items?
ABOUT THE INDIVIDUAL
As part of the review, each program was installed on a 80386 IBM PS/2 model 70 machine with four megs of RAM and a 120 meg hard drive. The same data was entered into each program, principally the assumed acquisition of a number of assets. In all cases, after entry of about five items, the process became quite easy, much like writing items on a 14-column worksheet.
The AICPA has joined the fixed assets accounting club. The depreciation package is part of the AICPA Integrated Practice System that includes Accountant's Trial Balance (ATB) and Audit Program Generator (APG). Those familiar with these other products will find Depreciation easy to use; it works and looks just like them. The program was developed with the year-end needs of the practicing CPA in mind but does have the capability to give interim period depreciation. Installation is simple, and users are prompted for any needed information.
Once the program has been started, navigating through it takes little or no learning due to the logical order and clean appearance of the screens. While there is a complete user's manual and tutorial, most users will only occasionally refer to them.
All of the menu screens are formatted exactly the same way as ATB and APG. The top line shows the company that has been selected, the middle of the screen shows the menu choices, and the bottom line(s) show which function keys are active and what they do. Menu options are displayed in the form of file cards, with the result that the description of each option can be much longer than would be possible if a menu bar had been used. This makes learning and using the product more intuitive.
Most companies can be set up by answering as few as six questions, four of which have default answers already displayed. The type of tax entity may also be entered so that the program knows which depreciation forms are appropriate.
Data Entry. One keystroke brings up an entry screen for recording a new asset. There are many items of information that may be entered about each asset including some that are not common on other depreciation packages. For example, in addition to the general ledger asset account number, the accumulated depreciation and depreciation expense accounts may be entered. This allows the program to compute and print a complete worksheet of the changes in the various property accounts and also the necessary journal entry to record depreciation for the year.
The program helps to keep users from making mistakes by only displaying acceptable methods and conventions based on previously entered information such as dates and tax systems. An added feature with this program is that it instantly recalculates and displays the depreciation for an asset whenever any of the factors are changed.
All computed amounts may be manually overridden, if desired. A diagnostic report is available that shows any overridden calculations.
Reports. AICPA Depreciation has numerous reports available on any of the six bases of depreciation (financial statements, federal, state, AMT, ACE, and other) and printing may be directed to printer, screen, or ASCII text file. A sample of some of the many available reports are as follows:
Depreciation schedules by category, G/L account number, system, or convention; summarized worksheet information for forms 4255, 4562 (multiple forms if there are multiple activities), 4626, 4797, and 6252.
One report that stood out was the overridden calculations, which is helpful to the person reviewing the depreciation workpapers.
Miscellaneous. A comprehensive context-sensitive help system and an on-line topical help system are available that all but eliminate the need to refer to the user's manual. The program also includes a shell to DOS command that is available at all menu screens that gives the user the ability to leave the depreciation program, perform another operation, and then return to the depreciation program. An on-line four-function calculator is available to make calculations to override some of the system calculations.
The program allows for most of the information items to have default responses. This can dramatically speed up the process of entering new assets.
This program was developed under contract by Direct Link Software, Inc., the company that developed ATB and APG for the AICPA.
Support is available by telephone, fax, and mail. The AICPA has contracted with Direct Link Software to provide all of the support.
FAAS (Fixed Asset Accounting
FAAS is a product of Crowe, Chizek & Company, a midwest medium- sized CPA firm, that is adaptable to either public accounting firm or corporate users. The input screen has a reference bar to inform the user which file is being worked on, a description bar of the options available, and a menu selection bar from which to select the options. The use of function keys is uniform throoughout the program and thus makes the program very intuitive.
The copy command can also be used to back up data files to a floppy drive, which is very useful while performing audits in the field. Three additional user definable fields are available to allow for sorting data levels that are not built into the program.
Data Entry. Asset maintenance is the mode where most data entry takes place. Data is entered by answering questions about the asset being added. The date field is critical because it is used to keep track of acquisitions for determining which first-year convention will be appropriate. Fields are also available for insurance and replacement values for risk-management and similar purposes.
The system allows the user to override the automatic calculations. All depreciation methods under current tax law are available to the user by the use of a finder. Non-business use of assets can be monitored.
Reports. FAAS presents three categories of reports: management, tax, and special. All reports issued by the system have a great deal of reporting flexibility built into them. Reports can be presented by range of asset code, location code, department code, date placed in service, asset status (active, retired or all), and any of three user definable fields. All reports are available in financial statement, federal, and state formats. The output can be directed to a printer, the screen, or an ASCII text file. The software supports all popular printers.
Tax reports include Form 4562, Alternative Minimum Tax; Sec. 179, direct expense details; and For 4255, Recapture of Investment Tax Credit. Special reports include an insurance review by location and five-year projections at any level.
Miscellaneous. The program was the only one reviewed that was able to run from a floppy disk, a nice feature for firms that still have dual floppy-based computers in the field. Another convenient feature is the ability to transfer depreciation calculations to general ledger programs. Currently, IBM Platinum, Great Plains, Real World Accounting, Libra, and Mica software are directly supported. An ASCII text file can be created for other general ledger packages that can read such files. The program comes with an easy to follow manual with many good examples. The last chapter in the manual (which probably should be read first) is entitled "Depreciation Overview," which talks about the logic that FAAS uses to calculate depreciation.
FAS2000 by Best Programs and with a $1,495 price tag is a high-end depreciation and fixed asset management system, principally for use by medium to large corporations. Best Programs also makes a lower-end package called FAS.
FAS2000 is menu driven. A chat line on the bottom of the screen lets the operator know exactly what information should be entered into the field at which the cursor is positioned. The book currently being worked on is indicated at the top of the screen. The F1 key is not used for context-sensitive help as in most programs, but, rather, to show the function of keys that are used throughout the program.
FAS2000 provides for the seven depreciation books. There is also an additional book that contains 11 predefined fields and 10 user defined fields that can be used for fixed asset management such as serial numbers, warranty expiration dates, and insurance information.
Data Entry. The entry of data into this system is straightforward with information and scroll boxes available to make selection easier (only valid choices appear in the boxes). The screen is divided into two sections--the top section is for general information, which remains constant, and the bottom screen changes for each of the books selected. By using a depreciation method labeled RR, the user can repeat information in the other books and significantly increase the speed of data entry. Moving between books took some getting used to.
Reports. Much information from many different views can be gained from using the extensive reporting features that are built into the program. Users can query on certain fields and identify ranges of information that are desired in the report. Output for tax reports include Forms 3468, 4255, 4562, 4626, and 4797. A report writer entitled Intelligent Query is included with the program to give the user even more flexibility in creating reports.
Miscellaneous. This program has the ability to track cumulative assets during the year to test whether the threshold of $210,000 has been attained for purposes of determining how much Sec. 179 expense can be taken. A very interesting feature lets the user customize field names and decide which fields to display at the time of data entry. Property tax tables can be designed and used in this program to determine market value, assessed vallue, and tax due.
The manual that comes with FAS2000 is quite comprehensive, yet easy to read. There is a chapter entitled "Depreciation Guide" which is a tutorial on basic rules to be followed for tax depreciation.
Fixed Assets by Total Computer
Fixed Assets is a companion product of the ACCPAC Plus accounting programs from Computer Associates. As a companion product it follows all of the programming features of the ACCPAC Plus series, but is developed by an independent third party. The program is geared more for industry but still retains many features that a CPA firm could use.
It uses a drop down menu where each of the choices is highlighted. At company creation the user may specify six user-definable fields; one in dollar format, one in date format, and the remaining four in alphanumeric format. These user-definable fileds, as well as any other fields, can be used to sort and query using Quik Reports from Crystal Services or Report Master available from Softline Systems.
Data Entry. Screens used for data entry are uncluttered and make data entry very easy. Scroll boxes open up at certain fields when a choice has to be made. An asset number may be an alphanumeric entry of up to 12 characters while the description field can be up to 25 spaces. Classifications have general ledger account numbers attached to them as well as recovery schedules that will be used in each of the avilable four journals. Additional fields are available so that assets may be tracked by location, classification, and department.
One of the nicest features of this program is the ability to import data from spreadsheet and database files. The import feature also gives companies with data on mini- or mainframe computers the ability to transfer it to a PC-based system, freeing up valuable space on the larger systems.
Data entry can be increased with a simple but effective replicate feature. This could be especially helpful in multiple asset acquisitions--an auto rental company purchasing 25 Ford Escorts--where the only difference is the asset number; other industries have similar situations.
Reports. Fixed Assets has a wide selection of reports to choose from. The reports may generally be sorted by asset number classification, location, or department, and any range of assets may be chosen. An audit journal shows all modifications, additions, and dispositions during the period.
A depreciation comparison report compares depreciation asset by asset between any two journals, very useful for deferred tax calculations. A depreciation projection feature is availabe. Printing can be directed to the printer, screen, an ASCII text file, or any combination. A schedule can be printed for gains and losses on disposal of fixed assets, but only for the first journal setup.
Miscellaneous. The help system in Fixed Assets uses the industry standard F1 key, which is context sensitive. The manual that is provided is short and to the point. Since Fixed Assets is a companion product, it has the ability to create depreciation and acquisition and disposition journal entries that transfer directly to ACCPAC Plus General Ledger and Financial Reporter. The system also produces a general ledger account listing that can be used as source of entry into other general ledger programs.
Total Computer Solutions produces a slimmed down version of their Fixed Assets program entitled Easy Assets. Easy Assets also is a companion product and works with the Computer Associates System Manager.
Mark A. Plostock, CPA, is a partner in the Mineola, New York, firm of Greenberger & Plostock, P.C. He is on the Information Technology Executive Committee for the AICPA and a member of the NYSSCPA General CUDP Committee. Mr. Plostock specializes in computerizing CPA firms.
The CPA Journal is broadly recognized as an outstanding, technical-refereed publication aimed at public practitioners, management, educators, and other accounting professionals. It is edited by CPAs for CPAs. Our goal is to provide CPAs and other accounting professionals with the information and news to enable them to be successful accountants, managers, and executives in today's practice environments.
©2009 The New York State Society of CPAs. Legal Notices
Visit the new cpajournal.com.