Fixed Assets & Depreciation

What are fixed assets?

Fixed asset setup

FA classes and subclasses

FA Classes group assets by type for reporting:

Class	Example Assets
Tangible	Machinery, vehicles, furniture, buildings
Intangible	Software licences, patents, goodwill

FA Subclasses provide finer grouping within classes:

Class	Subclass	Example
Tangible	Machinery	CNC machine, press, lathe
Tangible	Vehicles	Delivery van, forklift
Tangible	Furniture	Desks, chairs, shelving
Tangible	Buildings	Office building, warehouse
Intangible	Software	ERP licence, CAD software

Fixed asset posting groups

FA Posting Groups map fixed asset transactions to GL accounts — similar to how customer/vendor posting groups work:

Account	Purpose	Example GL
Acquisition Cost Account	Where the purchase cost is recorded	1600 (Fixed Assets)
Accum. Depreciation Account	Running total of depreciation	1610 (Accumulated Depreciation)
Depreciation Expense Account	Periodic depreciation expense	8100 (Depreciation Expense)
Gains Acc. on Disposal	Profit on selling an asset	8210 (Gain on FA Disposal)
Losses Acc. on Disposal	Loss on selling an asset	8220 (Loss on FA Disposal)
Maintenance Expense Account	Repair and maintenance costs	8150 (FA Maintenance)

Depreciation books

A depreciation book defines the rules for calculating depreciation. Most companies need at least one book; some need multiple:

Book	Purpose	Method	Example
COMPANY	Financial reporting (company books)	Straight-Line	5-year depreciation for machinery
TAX	Tax reporting (different rules)	Declining-Balance	Accelerated depreciation for tax benefits
INSURANCE	Insurance valuation	Replacement cost	Current replacement value tracking

Depreciation book settings

Field	Purpose
Code	Book identifier (COMPANY, TAX)
Description	Readable name
Default FA Posting Group	Default posting group for assets in this book
Allow Depr. below Zero	Can book value go negative? (usually No)
Use Same FA+G/L Posting Dates	FA posting date must match GL posting date
Fiscal Year 365 Days	Use exact day count instead of calendar months

Main assets and components

A main asset groups related assets that are tracked separately but reported together:

Example: Nordic Manufacturing buys a delivery truck ($80,000):

• Main Asset: Delivery Truck #7
• Component 1: Truck chassis and body — $65,000
• Component 2: Refrigeration unit — $10,000
• Component 3: GPS and fleet tracking — $5,000

Each component can have a different depreciation method and useful life, but they roll up to the main asset for reporting.

Depreciation methods

This is a heavily tested topic. Know the key methods and when to use each:

Depreciation methods compared

Method	How It Works	Annual Amount	Best For
Straight-Line	Equal amount each period	$10,000/yr for 5 years = $2,000/yr	Standard financial reporting, most assets
Declining-Balance 1 (DB1)	Fixed % of remaining book value	25% of declining balance each year	Tax depreciation, fast early write-off
DB1/SL (Declining then Straight)	DB1 until SL gives higher amount, then switches to SL	Starts aggressive, smooths out	Balanced approach, common in practice
Manual	User enters each period's amount	Whatever you specify	Irregular patterns, seasonal assets
User-Defined	Custom table of percentages per period	Per your table	Country-specific rules, custom schedules

Straight-Line depreciation

The simplest and most common method:

Annual Depreciation = (Acquisition Cost - Salvage Value) / Useful Life in Years

Example: Machine costs $50,000, salvage value $5,000, useful life 5 years
Annual Depreciation = ($50,000 - $5,000) / 5 = $9,000/year

Each year, $9,000 is recorded as depreciation expense. After 5 years, the book value equals the salvage value ($5,000).

Declining-Balance (DB1)

Depreciation is a fixed percentage of the remaining book value (not the original cost):

Year 1: $50,000 x 25% = $12,500  (book value drops to $37,500)
Year 2: $37,500 x 25% = $9,375   (book value drops to $28,125)
Year 3: $28,125 x 25% = $7,031   (book value drops to $21,094)
...

Higher depreciation in early years, declining over time. Useful for tax purposes where accelerated write-offs reduce taxable income.

DB1/SL (Combined method)

Starts with Declining-Balance, but switches to Straight-Line when SL gives a higher annual amount:

• Early years: DB1 percentage produces larger amounts → use DB1
• Later years: SL calculation produces larger amounts → switch to SL
• Result: faster depreciation than pure SL, but still reaches zero (unlike pure DB1 which asymptotically approaches zero)

💡 Exam tip: Choosing the right method

The exam may ask “which depreciation method should Olivia use for X scenario”:

• Standard office equipment, simple reporting → Straight-Line
• Tax optimisation, early expense maximisation → Declining-Balance
• Balance between speed and full depreciation → DB1/SL
• Seasonal or irregular usage patterns → Manual or User-Defined
• Country requires specific schedule → User-Defined with custom table

Also know: changing a depreciation method mid-life is possible but creates journal adjustments. It’s not a casual change.

Setting up depreciation on a fixed asset card

For each asset, configure depreciation in the Depreciation Book FastTab:

Field	Purpose	Example
Depreciation Book Code	Which book’s rules to follow	COMPANY
Depreciation Method	How to calculate	Straight-Line
Depreciation Starting Date	When depreciation begins	01/07/2026
No. of Depreciation Years	Useful life	5
Depreciation Ending Date	Auto-calculated or manual	30/06/2031
Salvage Value	Residual value at end of life	$5,000

Question

What is a depreciation book?

Click or press Enter to reveal answer

Answer

A set of depreciation rules applied to fixed assets. Companies can have multiple books (e.g., COMPANY for financial reporting, TAX for tax reporting) with different methods and useful lives for the same asset.

Click to flip back

Question

What's the difference between Straight-Line and Declining-Balance depreciation?

Click or press Enter to reveal answer

Answer

Straight-Line: equal amount each period. Declining-Balance: fixed percentage of the remaining book value — higher depreciation in early years, declining over time. DB gives faster write-off but never reaches zero.

Click to flip back

Question

What is a main asset in Business Central?

Click or press Enter to reveal answer

Answer

A parent asset that groups related components. Each component has its own depreciation settings but they roll up to the main asset for reporting. Example: a truck (main) with separately tracked engine, tyres, and GPS (components).

Click to flip back

Question

What GL accounts does an FA Posting Group define?

Click or press Enter to reveal answer

Answer

Acquisition Cost Account, Accumulated Depreciation Account, Depreciation Expense Account, Gains/Losses on Disposal Accounts, and Maintenance Expense Account.

Click to flip back

Knowledge check

Knowledge Check

Nordic Manufacturing buys a CNC machine for $100,000 with a salvage value of $10,000 and a useful life of 10 years. Using straight-line depreciation, what is the annual depreciation amount?

A$10,000 per yearB$9,000 per yearC$100,000 divided by 10 years = $10,000, but minus salvage = $9,000DBoth B and C describe the same calculation — $9,000

Check Answer

Knowledge Check

Olivia needs to track the same fixed assets with different depreciation methods — straight-line for company financial statements and declining-balance for tax returns. How does she configure this?

ACreate two fixed asset cards for each asset — one with each methodBCreate two depreciation books (COMPANY and TAX) and assign both to each assetCUse the User-Defined method with a custom table that covers both scenariosDThis isn't possible — each asset can only have one depreciation method

Check Answer

🎬 Video coming soon

---

Congratulations! You’ve completed Domain 2: Configure Financials. You now understand the GL, currencies, chart of accounts, posting groups, journals, AP, AR, and fixed assets.

Next up: Domain 3 — Configure Sales and Purchasing, starting with Inventory Setup and Costing.