With Laurence Tindall
In this article, you will be shown a useful feature in the ServiceNow hardware asset management application, called depreciation. Asset depreciation is the process followed by organizations to allocate the cost of an asset over the duration of its useful life. This process is typically fulfilled by accounting and finance teams within a company. Asset depreciation is a critical process, as it allows organizations to write off assets over multiple tax years versus a single year. By having this flexibility, companies are able to strategically plan and control their finances.
How to Calculate Depreciation of an Asset
To calculate the depreciation of an asset you need the following information:
Useful Life - This is the amount of years that an asset is typically useful for. Take for example a laptop, they're usually useful for about five years. Most organizations will follow accounting guidelines that determine the useful life for assets based on their class.
Total Price - This is the total amount the organization paid for the asset.
Purchase Date - This is the date in which the asset was procured from the vendor.
Depreciation Method - This is the formula that is used to calculate the depreciation of an asset over its useful life.
Salvage Value - This is the amount that the asset will be worth when it's fully depreciated.
Now you know what information you need to calculate the depreciation of an asset.
Most Common Depreciation Methods and How To Use
In IT asset management, the most popular depreciation methods that organizations use are Straight Line (SL) and Double Declining Balance (DDB). Straight Line is the most simple depreciation method as the cost of an asset is allocated equally over the useful life of an asset. Double Declining Balance is the depreciation method used for organizations that are calculating the depreciation amount for assets that lose most of their value in their first years.
Take for example an iPhone, they typically depreciate around 30% in their first year of use, so you may be wondering, why they're different depreciation methods? Why can't everyone just use the same one? The reason why there are various depreciation methods is so that organizations can use them depending on the asset type. For example, organizations will use the Double Declining Balance method for assets that lose the most amount of value in their first years; think of a brand new car. A brand new car depreciates the most in the first two years of its life, whereas computers and other IT assets typically depreciate consistently over their lifetime.
How to Configure a Hardware Asset
Let's go into ServiceNow and take a look at how to configure a hardware asset, so it can automatically be depreciated in the system. Within ServiceNow, click on the application navigator and type in hardware assets. Under the asset application, click onto the hardware assets module and click on the new button; a new hardware asset form will now load. In today's example, we are going to create an asset record, and then we'll fill in the required fields in order to calculate the depreciation. In the model field, we are going to select the DELL inc PowerEdge T410 Computer. Now select the category, right-click on the form header, and click save to create this asset record.
Now that the asset has been saved: click on the depreciation tab. In this tab, we have the following fields:
Depreciation - This field allows you to select the depreciation method that you wish to use. For today's example, we are going to select the straight line five years method as computers typically have a useful life of five years.
Depreciation Effective Date - This is the date in which you want the depreciation to start on the asset. Usually, this is the purchase date. For today’s example, we are going to select January 1, 2022.
Salvage Value - This is the amount that the asset will be worth when it's fully depreciated, we are going to enter $50.
Residual Date - This is the date in which the depreciation for this asset was last calculated.
Residual Value - This is the remaining financial amount that the asset has left to depreciate.
Depreciated Amount - This is the amount that the asset has depreciated so far.
You'll notice that Residual Date, Residual Value, and Depreciated Amount are read-only. This is because the system automatically generates the values for these fields.
Now, right-click on the form header and save this record. You'll notice that the system hasn't populated the Residual Date, Residual Value, and Depreciated Amount fields. This is because the system has a scheduled job that runs once a day to calculate the depreciation amount for all assets; this means that the values in these fields will only change once a day. To manually update these values, you can simply click on the calculate depreciation link that is located beneath the related links header. The values in these three fields have now been updated. You have successfully configured this asset to track its depreciation.
Using the information you've learned from this tutorial, you'll now be able to run reports on your hardware assets and provide stakeholders with asset depreciation figures.
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