Published on September 26, 2014
Financial Modelling HANDBOOK ACCOUNTING financialmodellinghandbook.com DEPRECIATION Initial balances and ongoing capital expenditure
ABOUT THE FINANCIAL MODELLING HANDBOOK Financial modelling should be collaborative. Collaboration reduces error, speeds up development time and lowers cost. The Financial Modelling Handbook is a collaborative, crowd-sourced guide to building better financial models using the FAST Standard. www.financialmodellinghandbook.com/contribute
financialmodellinghandbook.com Financial Modelling HANDBOOK SHVETA Shveta Sehwag is a financial modeller with F1F9. She is part of F1F9’s infrastructure team and has worked on a variety of infrastructure and energy models. She likes painting and cooking. View slide
Ongoing capital expenditure programmes give rise to modelling challenges when it comes to accounting depreciation. Care must be taken since assets start and stop depreciating at different times. In this guide, we will also consider how to model accounting depreciation relating to a partially depreciated initial balance. financialmodellinghandbook.comFinancial Modelling DOWNLOAD THIS GUIDE AND THE ACCOMPANYING EXCEL EXAMPLE HANDBOOK ACCOUNTING DEPRECIATION Initial balances and ongoing capital expenditure View slide
financialmodellinghandbook.comFinancial Modelling HANDBOOK REDUCTION IN NCA – INITIAL BALANCE This calculation block removes the gross book value of non current assets introduced to the model as an initial balance. In this example, the assets are assumed to be acquired on 31st December 2010. With a five year life, the gross book value is to be removed period ending 31st December 2015. This is modelled using a flag.
financialmodellinghandbook.comFinancial Modelling HANDBOOK REDUCTION IN NCA – ONGOING CAPEX USING SUMIF Now let us turn to ongoing capital expenditure. This calculation block removes assets from computations once they are fully depreciated. Note the use of the SUMIF function and the model column counter. The SUMIF function adds up data in a range where a condition is met. Here, the condition is based on the model column counter minus the useful economic life.
financialmodellinghandbook.comFinancial Modelling HANDBOOK REDUCTION IN NCA – ONGOING CAPEX USING SUMIF The result of the SUMIF function is to push data back by the period of the useful economic life. So the addition to non-current assets that appears in column K (the first forecast period) is ready for removal in column P. The formula may be explained as adding up the additions to non current assets only where the model column counter minus the useful life is equal to the model column counter. It results in a model period look back equal to the asset life.
financialmodellinghandbook.comFinancial Modelling HANDBOOK NON CURRENT ASSETS DEPRECIABLE BASIS Non current assets depreciable basis balance is calculated separately for initial balance and ongoing capital expenditure. Non current assets initial depreciable basis balance decreases with the reduction in depreciable basis of the initial balance1 1
financialmodellinghandbook.comFinancial Modelling HANDBOOK NON CURRENT ASSETS DEPRECIABLE BASIS Non current assets depreciable basis balance increases with additions to non current assets; Reduction in depreciable basis of additions to NCA causes the balance to decrease. Check out the guide on modelling balances to find out more about corkscrews. 2 2
financialmodellinghandbook.comFinancial Modelling HANDBOOK ACCOUNTING DEPRECIATION In this example, accounting depreciation for both the initial balance and ongoing capital expenditure is calculated on the basis of beginning balances. This assumes that acquisitions are end of period and no accounting depreciation is charged until the period following acquisition. Check out the formulae in L40 and L46: If the forecast period flag is one, then divide the depreciable basis beginning balance by the useful economic life; if the forecast period flag is zero, then return a zero.
financialmodellinghandbook.comFinancial Modelling HANDBOOK NON CURRENT ASSETS Another cork screw is required for non current assets as they appear in the balance sheet. The balance increases with additions to non current assets; accounting depreciation causes the balance to decrease.
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Accounting depreciation – Initial balances and ongoing capital expenditure (This guide replaces the guide – Advanced depreciation using SUMIF)
Capital Expenditures and Depreciation. ... Capital Expenditures aka CapEx is the spending of money to buy or fix assets. ... Balance Sheet: Long Term ...
Without depreciation accounting, ... depreciates the capital expenditure over its useful life, ... Accumulated Depreciation (Balance Sheet)
View 69554 Capital Expenditure ... control capital expenditures and operating activities at ... Accounting depreciation - Initial balances and ongoing ...
Capital and Revenue Expenditure. Expenditure on fixed assets may be classified into Capital Expenditure and Revenue Expenditure. The distinction between ...
BREAKING DOWN 'Capital Expenditure (CAPEX)' In terms of accounting, an expense is considered to be a capital expenditure when the asset is a newly ...
Capital expenditure or capital expense ... An ongoing question for the accounting of any company is ... Capitalized expenditures show up on the balance ...
How to calculate capital expenditures. ... the entity's capital expenditures. ... of accumulated depreciation listed on the financial statements ...
increased when no capital expenditure takes ... Calculation of depreciation Accounting standards ... depreciation, the balances relating to the asset