3C's Model - Corporation/ Customer/ Competitors

The 3C’s model points out that a strategist should focus on three key factors for success. In the construction of a business strategy, three main players must be taken into account:

A. The Corporation

B. The Customer

C. The Competitors

Only by integrating these three C’s (Corporation, Customer, Competitors) in a strategic triangle, a sustained competitive advantage can exist. Ohmae refers to these key factors as the three C’S or strategic triangle. 

The Corporation

• The Corporation needs strategies aiming to maximize the corporation’s strengths relative to the competition in the functional areas that are critical to achieve success in the industry.
• Selectivity and sequencing The Corporation does not have to lead in every function to win. If it can gain decisive edge in one key function, it will eventually be able to improve its other functions which are now average.
• Make or buy In case of rapidly rising wage costs, it becomes a critical decision for a company to subcontract a major share of its assembly operations. If its competitors are unable to shift production so rapidly to subcontractors and vendors, the resulting difference in cost structure and/ or in the companies ability to cope with demand fluctuations may have significant strategic implications.
• Cost-effectiveness improving the cost-effectiveness can be done in three ways. First by reducing basic costs, second by exercising greater selectivity (orders accepted, products offered, functions performed) and third by sharing certain key functions with a corporation’s other businesses or even other companies.

The Customer

Clients are the base of any strategy according to Ohmae. Therefore, the primary goal supposed to be the interest of the customer and not those of the shareholders for example. In the long run, a company that is genuinely interested in its customers will be interesting for its investors and take care of their interests automatically. Segmentation is helping to understand the customer.

• Segmenting by objectives the differentiation is done in terms of the different ways that various customers use a product.
• Segmenting by customer coverage this segmentation normally emerges from a trade-off study of marketing costs versus market coverage. There appears always to be a point of diminishing returns in the cost versus coverage relationship. The cooperation’s task is to optimize its range of market coverage, geographical and/ or channel wise.
• Segmenting the market once more In a fiercely competition, competitors are likely to be dissecting the market in similar ways. Over an extended period of time, the effectiveness of a given initial strategic segmentation will tend to decline. In such situations it is useful to pick a small group of customers and reexamine what it is that they are really looking for.

A market segment change occurs where the market forces are altering the distribution of the user-mix over time by influencing demography, distribution channels, customer size, etc. This kind of change means that the allocation of corporate resources must be shifted and/ or the absolute level of resources committed in the business must be changed.

The Competitors

The Competitors Competitor based strategies can be constructed by looking at possible sources of differentiation in functions such as: purchasing, design, engineering, sales and servicing. The following aspects show ways in order to achieve this differentiation:

• Power of image when product performance and mode of distribution are very difficult to distinguish, image may be the only source of positive differentiation.
• Capitalizing on profit- and cost structure differences Firstly, the difference in source of profit might be exploited, from new products sales etc. Secondly, a difference in the ratio of fixed costs and variable costs might also be exploited strategically. A company with lower fixed cost ratio can lower prices in a sluggish market and hence gain market share.
• Hito-Kane-Mono A favorite phrase of Japanese business planners is hito-kane-mono, standing for people, money and things. They believe that streamlined corporate management is achieved when these three critical resources are in balance without surplus or waste. For example: Cash over and beyond what competent people can intelligently expend is wasted. Of the three critical resources, funds should be allocated last. The corporation should firstly allocate management talent, based on the available mono (things): plant, machinery, technology, process know-how and functional strength. Once these hito (people) have developed creative and imaginative ideas to capture the business’s upward potential, the kane (money) should be given to the specific ideas and programs generated by the individual managers.

Balancing Segment & Natural Account Segment in Oracle Application/ Oracle Fusion

 First of all we need to take note that, in ERP Implementations, while there are customizations of some/many requirements of the Client, we are not customizing all the requirements, but are going to set the Oracle Applications in a way to meet Basic Accounting Concepts & Practices and majority of the requirements of the Client Organization. This is also in view of the fact that the requirements can be endless leading to endless customization which would not be possible from Time and Money perspectives and one need to draw a line. 

Hence the two basic criterias that we need to take care of or keep in mind whilst ERP Implementation are the following:

-       Basic Accounting Concepts & Practices

-       The Features of Oracle Application, especially to meet the above point. 

Coming to – Basic Accounting Concepts and Practices, one major concept is the System of Double Entry for recording of transactions in Books of Accounts. 

For the application (i.e., implementation) of this Double Entry concept into the ERP System, Oracle has its own way of doing so. 

In case of Oracle Applications, every entry finally has its reflection in the General Ledger. Here in Oracle Applications, it may so happen that for recording a transaction an account is credited in Finance Family Module and another account is debited in Procurement Family Module or an account is debited and another account is credited within the Finance Family Modules itself. 

For Eg. Crediting Creditor A/c under Accounts Payable Module of the Finance Family

             Modules &

             Debiting Raw Material A/c under Inventory Module of the Procurement Family

             Modules 

OR

Debiting Plant & Machinery A/c under Fixed Assets Module of the Finance Family

             Modules &

             Crediting Bank of Baroda A/c under Cash Management Module of the Finance

             Family 

In either of the cases mentioned above, the final reflection will be in General Ledger (GL), where transaction is validated to have a Double Entry System. In Oracle Applications we have to assign this check by setting the Balancing Segment. As an Organizational Chart can be very huge and wide spread and also because there are various Modules of Oracle which run on Single Entry System (looking at it from stand alone perspective), for implementation of an ERP, there has to be integration of data and ultimately the Debit Balances matching the Credit Balances. Logically speaking the final peak at which Debit and Credit Balances should match is at the top of an Organizational Chart. So applying the same logic, in the Test Case of ABC Group, the ABC Group (i.e., the Business Group) is where the Debit and Credit Balances should match.

But in the above example, as ABC group is just a Business Group and not a Legal Entity, the Legal Entities have separate Books of Accounts, so ideally the 2^nd topmost level where Debit and Credit Balances should match is at the Legal Entity level. So ideally as per general accounting practices the Balancing Segment in the Test Case of ABC Group should be at the Legal Entity level, i.e., at the ABC India Ltd. and ABC Electricals Ltd. level. This is also because the Set of Books (for Transaction recording) is defined at this level. We can also simultaneously define the Balancing Segment at the ABC Group level in the Set of Books maintained for reporting purpose. 

Now, the second most important factor of Basic Accounting Concepts & Practices is to account for the monetary value of the transaction. This is done by debiting and/or crediting an account head by the monetary value for that transaction. For all transactions, there has to be atleast one account head. To take care of this validation, that, atleast one account head is debited or credited whilst recording a transaction, the “Natural Account Segment’ is defined. 

Thus from the above details it is clear as to what are the Balancing Segment and the Natural Account Segment and their significance in Oracle Applications. Please note while these two are Mandatory Segments that are to be defined, the defining of all other segments is optional

Complete Fixed Asset Accounting in Oracle EBS/ Oracle Cloud/ Fusion

For manual additions, Oracle Assets gets the clearing account from the category. For mass additions, the clearing account comes from your source system.

Example: The recoverable cost is $4,000 and the method is straight-line 4 years.

Current and Prior Period Addition

You purchase and place the asset into service in Year 1, Quarter 1.

Payables System

Account Description	Debit	Credit
Asset Clearing	4,000.00
Accounts Payable Liability		4,000.00

Oracle Assets - CURRENT PERIOD ADDITION

Account Description	Debit	Credit
Asset Cost	4,000.00
Depreciation Expense	250.00
Asset Clearing		4,000.00
Accumulated Depreciaiton		250.00

You place an asset in service in Year 1, Quarter 1, but you do not enter it into Oracle Assets until Year 2, Quarter 2. Your payables system creates the same journal entries to asset clearing and accounts payable liability as for a current period addition.

Oracle Assets - PRIOR PERIOD ADDITION

Account Description	Debit	Credit
Asset Cost	4,000.00
Depreciation Expense	250.00
Depreciation Expense (Adjustment)	1,250.00
Asset Clearing		4,000.00
Accumulated Depreciaiton		1,500.00

Merge Mass Additions

When you merge two mass additions, Oracle Assets adds the asset cost of the mass addition that you are merging to the asset account of the mass addition you are merging into. Oracle Assets records the merge when you perform the transaction. Oracle Assets does not change the asset clearing account journal entries it creates for each line, so each of the appropriate clearing accounts clears separately.

As an audit trail after the merge, the original cost of the invoice line remains on each line. When you create an asset from the merged line, the asset cost is the total merged cost.

Oracle Assets creates journal entries for the asset cost account for the mass addition into which the others were merged. Oracle Assets creates journal entries for each asset clearing account. For example, you merge mass addition #1 into mass addition #2, so Oracle Assets creates the following journal entries:

Account Description	Debit	Credit
Asset Cost (mass addition #2 asset cost account)	4,000.00
Depreciation Expense	1,500.00
Asset Clearing (mass addition #1 accounts payable clearing account)		3,000.00
Asset Clearing (mass addition #2 accounts payable clearing account)		1,000.00
Accumulated Depreciaiton		1,500.00

Construction-In-Process (CIP) Addition

You add a CIP asset. (CIP assets do not depreciate)

Oracle Assets

Account Description	Debit	Credit
CIP Cost	4,000.00
CIP Clearing		4,000.00

Deleted Mass Additions

Oracle Assets creates no journal entries for deleted mass additions and does not clear the asset clearing accounts credited by accounts payable. You clear the accounts by either reversing the invoice in your payables system, or creating manual journal entries in your general ledger.

Capitalization

When you capitalize CIP assets, Oracle Assets creates journal entries that transfer the cost from the CIP cost account to the asset cost account. The clearing account has already been cleared.

Account Description	Debit	Credit
Asset Cost	4,000.00
Depreciation Expense	250.00
CIP Cost		4,000.00
Accumulated Depreciation		250.00

Asset Type Adjustments

If you change the asset type from capitalized to CIP, Oracle Assets creates journal entries to debit the CIP cost account and credit the asset clearing account. Oracle Assets does not create capitalization or reverse capitalization journal entries for CIP reverse transactions.

Oracle Assets - CHANGE TYPE FROM CAPITALIZED TO CIP (CURRENT PERIOD)

Account Description	Debit	Credit
CIP Cost	4,000.00
Asset Clearing		4,000.00

 

 

Journal Entries for Depreciation

When you run depreciation, Oracle Assets creates journal entries for your accumulated depreciation accounts and your depreciation expense accounts. Oracle Assets creates journal entries for your bonus reserve accounts and your bonus depreciation accounts, if any. Oracle Assets creates separate journal entries for current period depreciation expense and for adjustments to depreciation expense for prior period transactions and changes to financial information.

Oracle Assets creates the following journal entries for a current period depreciation charge of $200 and a bonus charge of $50:

Account Description	Debit	Credit
Depreciation Expense	200.00
Bonus Expense	50.00
Accumulated Depreciation		200.00
Bonus Reserve		50.00

 

 

Journal Entries for Retirements and Reinstatements

When you retire an asset and create journal entries for that period, Oracle Assets creates journal entries for your general ledger for each component of the gain/loss amount. Oracle Assets creates journal entries for either the gain or the loss accounts for the following components: proceeds of sale, cost of removal, net book value retired, and revaluation reserve retired. Oracle Assets also creates journal entries to clear the proceeds of sale and cost of removal.

Oracle Assets creates journal entries for the retirement accounts you set up in the Book Controls window. If you enter distinct gain and loss accounts for each component of the gain/loss amount, Oracle Assets creates multiple journal entries for these accounts. You can enter different sets of retirement accounts for retirements that result in a gain and retirements that result in a loss.

Depreciation for Retirements

The retirement convention, date retired, and depreciation method control how much depreciation Oracle Assets takes when you retire an asset.

Oracle Assets reverses the year-to-date depreciation if the asset's depreciation method does not depreciate it in the year of retirement. In this case, when you perform a full retirement, Oracle Assets reverses the year-to-date depreciation of the asset, and computes the gain or loss using the resulting net book value. For partial retirements, Oracle Assets reverses the appropriate fraction of the year-to-date depreciation and computes the gain or loss using the appropriate fraction of the resulting net book value.

If the depreciation method takes depreciation in the year of retirement, Oracle Assets uses your retirement convention to determine whether the asset is eligible for additional depreciation in that year or whether some of that year's depreciation must be reversed.

When you perform a partial retirement, Oracle Assets depreciates the portion of the asset you did not retire based on the method you use. If your depreciation method multiplies a flat-rate by the cost, Oracle Assets depreciates the asset's cost remaining after a partial retirement. For assets that use a diminishing value method, Oracle Assets depreciates the remaining fraction of the asset's net book value as of the beginning of the fiscal year.

Depreciation for Reinstatements

The retirement convention, date retired, and period in which you reinstate an asset control how much depreciation Oracle Assets calculates when you reinstate an asset.

When you reinstate a retired asset, Oracle Assets usually calculates some additional depreciation expense in the period in which you perform the reinstatement, unless you perform it in the same period that you retired the asset. This additional depreciation is the depreciation that would have been taken if you had not retired the asset.

Sometimes, however, a reinstatement results in a reversal of depreciation. This occurs if the retirement convention caused some additional depreciation when you retired the asset, and then you reinstate the asset before the retirement prorate date. Then Oracle Assets reverses the extra depreciation that it took at retirement, and waits until the appropriate accounting periods to take it.

Current Period Retirements

Example: You place an asset in service in Year 1, Quarter 1. The asset cost is $4,000, the life is 4 years, and you are using straight-line depreciation. In Year 3, Quarter 3, you sell the asset for $2,000. The cost to remove the asset is $500. The asset uses a retirement convention and depreciation method which take depreciation in the period of retirement. You retire revaluation reserve in this book.

Account Description	Debit	Credit
Accounts Receivable	2,000.00
Proceeds of Sales Clearing		2,000.00

 

Account Description	Debit	Credit
Cost of Removal Clearing	500.00
Accounts Payable		500.00

 

Account Description	Debit	Credit
Accumulated Depreciation	2,500.00
Proceeds of Sale Clearing	2,000.00
Cost of Removal Gain	500.00
Revaluation Reserve	600.00
Net Book Value Retired Gain	1,500.00
Asset Cost		4,000.00
Proceeds of Sale Gain		2,000.00
Cost of Removal Clearing		500.00
Revaluation Reserve Retired Gain		600.00

If you enter the same account for each gain and loss account, Oracle Assets creates a single journal entry for the net gain or loss as shown in the following table:

Book Controls window:

Accounts	Gain	Loss
Proceeds of Sale	1000	1000
Cost of Removal	1000	1000
Net Book Value Retired	1000	1000
Revaluation Reserve Retired	1000	1000

 

Account Description	Debit	Credit
Accumulated Depreciation	2,500.00
Proceeds of Sale Clearing	2,000.00
Revaluation Reserve	600.00
Asset Cost		4,000.00
Cost of Removal Clearing		500.00
Gain/Loss		600.00

Prior Period Retirement

Example: You place an asset in service in Year 1, Quarter 1. The asset cost is $4,000, the life is 4 years, and you are using straight-line depreciation. In Year 3, Quarter 3, you discover that the asset was sold in Year 3, Quarter 1, for $2,000. The removal cost was $500. The asset uses a retirement convention and depreciation method which allow you to take depreciation in the period of retirement.

Account Description	Debit	Credit
Accounts Receivable	2,000.00
Proceeds of Sale Clearing		2,000.00

 

Account Description	Debit	Credit
Cost of Removal Clearing	500.00
Accounts Payable		500.00

 

Account Description	Debit	Credit
Accumulated Depreciation	2,500.00
Proceeds of Sale Clearing	2,000.00
Cost of Removal Loss	500.00
Net Book Value Retired Loss	1,750.00
Proceeds of Sale Loss		2,000.00
Cost of Removal Clearing		500.00
Asset Cost		4,000.00
Depreciation Expense		250.00

Current Period Reinstatement

Example: You discover that you retired the wrong asset. Oracle Assets creates journal entries for the reinstatement to debit asset cost, credit accumulated depreciation, and reverse the gain or loss you recognized for the retirement. Oracle Assets reverses the journal entries for proceeds of sale, cost of removal, net book value retired, and revaluation reserve retired. Oracle Assets also reverses the journal entries you made to clear the proceeds of sale and cost of removal.

Oracle Assets also creates journal entries to recover the depreciation not charged to the asset and for the current period depreciation expense.

Account Description	Debit	Credit
Asset Cost	4,000.00
Cost of Removal Clearing	500.00
Gain / Loss	600.00
Depreciation Expense	250.00
Accumulated Depreciation		2,750.00
Proceeds of Sale Clearing		2,000.00
Revaluation Reserve		600.00

Prior Period Reinstatement

Example: You place an asset in service in Year 1, Quarter 1. The asset cost is $4,000, the life is 4 years, and you are using straight-line depreciation. In Year 2, Quarter 1, you retire the asset. In Year 2, Quarter 4, you realize that you retired the wrong asset so you reinstate it.

Account Description	Debit	Credit
Asset Cost	4,000.00
Cost of Removal Clearing	500.00
Proceeds of Sale Loss	2,000.00
Depreciation Expense	250.00
Depreciation Expense (adjustment)	500.00
Net Book Value Retired Loss		2,750.00
Cost of Removal Loss		500.00
Proceeds of Sale Clearing		2,000.00
Accumulated Depreciation		2,000.00

Assets Fully Reserved Upon Addition

If you add an asset with an accumulated depreciation equal to the recoverable cost, it is fully reserved upon addition. When you retire it, Oracle Assets does not back out any depreciation, even if you assigned the asset a depreciation method that backs out all depreciation in the year of retirement. However, it creates all the other journal entries associated with retiring a capitalized asset.

Non-Depreciated Capitalized/Construction-In-Process (CIP) Assets

A non-depreciated capitalized asset or a CIP asset has no accumulated depreciation. Therefore, Oracle Assets does not create journal entries to catch up depreciation to the retirement prorate date, and does not remove the accumulated depreciation. However, Oracle Assets creates all other journal entries associated with retiring a capitalized asset.

Reinstatement Transactions

PENDING Asset Retirement

When you reinstate an asset retired in the current accounting period that the calculate gains and losses program has not yet processed, the retirement transaction is deleted, and the asset is immediately reinstated. No journal entries are created.

PROCESSED Asset Retirement

When you reinstate an asset retired in a previous accounting period or already processed in the current period, the existing retirement transaction gets a new Status REINSTATE, and the asset is reinstated when you process retirements. Oracle Assets creates journal entries to catch up any missed depreciation expense.

 

Journal Entries for Revaluations

The following examples illustrate the effect on your assets and your accounts when you specify different revaluation rules.

Revalue Accumulated Depreciation

Example 1: You place an asset in service in Year 1, Quarter 1. The asset cost is $10,000, the life is 5 years, and you are using straight-line depreciation.

In Year 2, Quarter 1 you revalue the asset using a revaluation rate of 5%. Then in Year 4, Quarter 1 you revalue the asset again using a revaluation rate of -10%.

Revaluation Rules:

• Revalue Accumulated Depreciation = Yes
• Amortize Revaluation Reserve = No
• Retire Revaluation Reserve = No

Oracle Assets bases the new depreciation expense on the revalued remaining net book value.

In Year 5, Quarter 4, at the end of the asset's life, you retire the asset with no proceeds of sale or cost of removal.

The effects of the revaluations are illustrated in the following table:

Period (Yr, Qtr.)	Asset Cost	Deprn. Expense	Accum. Deprn.	Reval. Reserve
Yr1,Q1	10,000.00	500.00	500.00	0.00
Yr1,Q2	10,000.00	500.00	1,000.00	0.00
Yr1,Q3	10,000.00	500.00	1,500.00	0.00
Yr1,Q4	10,000.00	500.00	2,000.00	0.00
Reval. 1 5%	10,500.00	0.00	*2,100.00	**400.00
Yr2,Q1	10,500.00	525.00	2,625.00	400.00
Yr2,Q2	10,500.00	525.00	3,150.00	400.00
Yr2,Q3	10,500.00	525.00	3,675.00	400.00
Yr2,Q4	10,500.00	525.00	4,200.00	400.00
Yr3,Q1	10,500.00	525.00	4,725.00	400.00
Yr3,Q2	10,500.00	525.00	5,250.00	400.00
Yr3,Q3	10,500.00	525.00	5,775.00	400.00
Yr3,Q4	10,500.00	525.00	6,300.00	400.00
Reval. 2 -10%	9,450.00	0.00	*5,670.00	**-20.00
Yr4,Q1	9,450.00	472.50	6,142.50	-20.00
Yr4,Q2	9,450.00	472.50	6,615.00	-20.00
Yr4,Q3	9,450.00	472.50	7,087.50	-20.00
Yr4,Q4	9,450.00	472.50	7,560.00	-20.00
Yr5,Q1	9,450.00	472.50	8,032.50	-20.00
Yr5,Q2	9,450.00	472.50	8,505.00	-20.00
Yr5,Q3	9,450.00	472.50	8,977.50	-20.00
Yr5,Q4	9,450.00	472.50	9,450.00	-20.00
Retire	0.00	0.00	0.00	-20.00

REVALUATION 1

Year 2, Quarter 1, 5% revaluation

*Accumulated Depreciation = Existing Accumulated Depreciation + [Existing Accumulated Depreciation x (Revaluation Rate / 100)]

2,000 + [2,000 X (5/100)] = 2,100

 

**Revaluation Reserve = Existing Revaluation Reserve + Change in Net Book Value

0 + (8,400 - 8,000) = 400

 

Account Description	Debit	Credit
Asset Cost	500.00
Revaluation Reserve		400.00
Accumulated Depreciation		100.00

REVALUATION 2

-10% revaluation in Year 4, Quarter 1:

Account Description	Debit	Credit
Revaluation Reserve	420.00
Accumulated Depreciation	630.00
Asset Cost		1,050.00

Retirement in Year 5, Quarter 4:

Account Description	Debit	Credit
Accumulated Depreciation	9,450.00
Asset Cost		9,450.00

Accumulated Depreciation Not Revalued

Example 2: You place an asset in service in Year 1, Quarter 1. The asset cost is $10,000, the life is 5 years, and you are using straight-line depreciation.

In Year 2, Quarter 1 you revalue the asset using a revaluation rate of 5%. Then in Year 4, Quarter 1 you revalue the asset again using a revaluation rate of -10%.

Revaluation Rules:

• Revalue Accumulated Depreciation = No
• Amortize Revaluation Reserve = No
• Retire Revaluation Reserve = Yes

For the first revaluation, the asset's new revalued cost is $10,500. Since you do not revalue the accumulated depreciation, Oracle Assets transfers the balance to the revaluation reserve in addition to the change in cost.

Since you are also not amortizing the revaluation reserve, this amount remains in the revaluation reserve account until you retire the asset, when Oracle Assets transfers it to the appropriate revaluation reserve retired account. Oracle Assets bases the new depreciation expense on the revalued net book value.

For the second revaluation, the asset's revalued cost is $9,450. Again, since you do not revalue the accumulated depreciation, Oracle Assets transfers the balance to the revaluation reserve along with the change in cost.

You retire the asset in Year 5, Quarter 4, with no proceeds of sale or cost of removal.

The effects of the revaluations are illustrated in the following table:

Period (Yr, Qtr.)	Asset Cost	Deprn. Expense	Accum. Deprn.	Reval. Reserve
Yr1,Q1	10,000.00	500.00	500.00	0.00
Yr1,Q2	10,000.00	500.00	1,000.00	0.00
Yr1,Q3	10,000.00	500.00	1,500.00	0.00
Yr1,Q4	10,000.00	500.00	2,000.00	0.00
Reval. 1 5%	10,500.00	0.00	0.00	*2,500.00
Yr2,Q1	10,500.00	**656.25	6,56.25	2,500.00
Yr2,Q2	10,500.00	656.25	1,312.50	2,500.00
Yr2,Q3	10,500.00	656.25	1,968.75	2,500.00
Yr2,Q4	10,500.00	656.25	2,625.00	2,500.00
Yr3,Q1	10,500.00	656.25	3,281.25	2,500.00
Yr3,Q2	10,500.00	656.25	3,937.50	2,500.00
Yr3,Q3	10,500.00	656.25	4,593.75	2,500.00
Yr3,Q4	10,500.00	656.25	5,250.00	2,500.00
Reval. 2 -10%	9,450.00	0.00	0.00	*6,700.00
Yr4,Q1	9,450.00	**1,181.25	1,181.25	6,700.00
Yr4,Q2	9,450.00	1,181.25	2,362.50	6,700.00
Yr4,Q3	9,450.00	1,181.25	3,543.75	6,700.00
Yr4,Q4	9,450.00	1,181.25	4,725.00	6,700.00
Yr5,Q1	9,450.00	1,181.25	5,906.25	6,700.00
Yr5,Q2	9,450.00	1,181.25	7,087.50	6,700.00
Yr5,Q3	9,450.00	1,181.25	8,268.75	6,700.00
Yr5,Q4	9,450.00	1,181.25	9,450.00	6,700.00

REVALUATION 1

5% revaluation in Year 2, Quarter 1:

Account Description	Debit	Credit
Asset Cost	500.00
Accumulated Depreciation	2,000.00
Revaluation Reserve		2,500.00

REVALUATION 2

-10% revaluation in Year 4, Quarter 1:

Account Description	Debit	Credit
Accumulated Depreciation	5,250.00
Asset Cost		1,050.00
Revaluation Reserve		4,200.00

Retirement in Year 5, Quarter 4:

Account Description	Debit	Credit
Accumulated Depreciation	9,450.00
Revaluation Reserve	6,700.00
Revaluation Reserve Retired Gain		6,700.00
Asset Cost		9,450.00

Amortizing Revaluation Reserve

Example 3: You place an asset in service in Year 1, Quarter 1. The asset cost is $10,000, the life is 5 years, and you are using straight-line depreciation.

In Year 2, Quarter 1 you revalue the asset using a rate of 5%. Then in Year 4, Quarter 1 you revalue the asset again using a rate of -10%.

Revaluation Rules:

• Revalue Accumulated Depreciation = No
• Amortize Revaluation Reserve = Yes

For the first revaluation, the asset's new revalued cost is $10,500. Since you do not revalue the accumulated depreciation, Oracle Assets transfers the entire amount to the revaluation reserve. Since you are amortizing the revaluation reserve, Oracle Assets calculates the revaluation amortization amount for each period using the asset's depreciation method. Oracle Assets also bases the new depreciation expense on the revalued net book value.

For the second revaluation, the asset's revalued cost is $9,450. Again, since you do not revalue the accumulated depreciation, Oracle Assets transfers the entire amount to the revaluation reserve.

The effects of the revaluations are illustrated in the following table:

Period (Yr,Qtr.)	Asset Cost	Deprn. Expense	Accum. Deprn.	Reval. Amortize	Reval. Reserve
Yr1,Q1	10,000.00	500.00	500.00	0.00	0.00
Yr1,Q2	10,000.00	500.00	1,000.00	0.00	0.00
Yr1,Q3	10,000.00	500.00	1,500.00	0.00	0.00
Yr1,Q4	10,000.00	500.00	2,000.00	0.00	0.00
Reval. 1 5%	10,500.00	0.00	0.00	0.00	*2,500.00
Yr2,Q1	10,500.00	**656.25	656.25	***156.25	2,343.75
Yr2,Q2	10,500.00	656.25	1,312.50	156.25	2,187.50
Yr2,Q3	10,500.00	656.25	1,968.75	156.25	2,031.25
Yr2,Q4	10,500.00	656.25	2,625.00	156.25	1,875.00
Yr3,Q1	10,500.00	656.25	3,281.25	156.25	1,718.75
Yr3,Q2	10,500.00	656.25	3,937.50	156.25	1,562.50
Yr3,Q3	10,500.00	656.25	4,593.75	156.25	1,406.25
Yr3,Q4	10,500.00	656.25	5,250.00	156.25	1,250.00
Reval. 2 -10%	9,450.00	0.00	0.00	0.00	*5,450.00
Yr4,Q1	9,450.00	**1,181.25	1,181.25	***681.25	4,768.75
Yr4,Q2	9,450.00	1,181.25	2,362.50	681.25	4,087.50
Yr4,Q3	9,450.00	1,181.25	3,543.75	681.25	3,406.25
Yr4,Q4	9,450.00	1,181.25	4,725.00	681.25	2,725.00
Yr5,Q1	9,450.00	1,181.25	5,906.25	681.25	2,043.75
Yr5,Q2	9,450.00	1,181.25	7,087.50	681.25	1,362.50
Yr5,Q3	9,450.00	1,181.25	8,268.75	681.25	681.25
Yr5,Q4	9,450.00	1,181.25	9,450.00	681.25	0.00

REVALUATION 1

Year 2, quarter 1, 5% revaluation

Account Description	Debit	Credit
Asset Cost	500.00
Accumulated Depreciation	2,000.00
Revaluation Reserve		2,500.00

Oracle Assets creates the following journal entries each period to amortize the revaluation reserve:

Account Description	Debit	Credit
Revaluation Reserve	158.25
Revaluation Amortization		158.25

REVALUATION 2

Year 4, quarter 1, -10% revaluation

Account Description	Debit	Credit
Accumulated Depreciation	5,250.00
Asset Cost		1,050.00
Revaluation Reserve		4,200.00

Oracle Assets creates the following journal entries each period to amortize the revaluation reserve:

Account Description	Debit	Credit
Revaluation Reserve	681.25
Revaluation Amortization		681.25

Revaluation of a Fully Reserved Asset

Example 4: You place an asset in service in Year 1, Quarter 1. The asset cost is $10,000, the life is 5 years, and you are using straight-line depreciation. The asset's life extension factor is 2 and the maximum fully reserved revaluations allowed for this book is 3.

In year 5, quarter 4 the asset is fully reserved. In Year 9, Quarter 1 you want to revalue the asset with a revaluation rate of 5%.

Revaluation Rules:

• Revalue Accumulated Depreciation = Yes
• Amortize Revaluation Reserve = No

First, Oracle Assets checks whether this fully reserved asset has been previously revalued as fully reserved, and that the maximum number of times is not exceeded by this revaluation. Since this asset has not been previously revalued as fully reserved, this revaluation is allowed.

The asset's new revalued cost is $10,500. The life extension factor for this asset is 2, so the asset's new life is 2 ? 5 years = 10 years. Oracle Assets calculates depreciation expense over its new life of 10 years. Oracle Assets calculates the depreciation adjustment of $2,000 using the new 10 year asset life. It transfers the change in net book value to the revaluation reserve account.

Oracle Assets revalues the accumulated depreciation using the 5% revaluation rate. The change in net book value is transferred to the revaluation reserve account. Since you do not amortize the revaluation reserve, the amount remains in the revaluation reserve account.

The effect of the revaluation is illustrated in the following table:

Period (Yr, Qtr.)	Asset Cost	Deprn. Expense	Accum. Deprn.	Reval. Reserve
Yr1 to Yr4
Yr5,Q1	10,000.00	500.00	8,500.00	0.00
Yr5,Q2	10,000.00	500.00	9,000.00	0.00
Yr5,Q3	10,000.00	500.00	9,500.00	0.00
Yr5,Q4	10,000.00	500.00	10,000.00	0.00
Reval. 5%	10,500.00	0.00	*8,400.00	**2,100.00
Yr9,Q1	10,500.00	***262.50	8,662.50	2,100.00
Yr9,Q2	10,500.00	262.50	8,925.00	2,100.00
Yr9,Q3	10,500.00	262.50	9,187.50	2,100.00
Yr9,Q4	10,500.00	262.50	9,450.00	2,100.00
Yr10,Q1	10,500.00	262.50	9,712.50	2,100.00
Yr10,Q2	10,500.00	262.50	9,975.00	2,100.00
Yr10,Q3	10,500.00	262.50	10,237.50	2,100.00
Yr10,Q4	10,500.00	262.50	10,500.00	2,100.00

 

Account Description	Debit	Credit
Asset Cost	500.00
Accumulated Depreciation	1,600.00
Revaluation Reserve		2,100.00

Revaluation with Life Extension Ceiling

Example 5: You place an asset in service in Year 1, Quarter 1. The asset cost is $10,000, the life is 5 years, and you are using straight-line depreciation. The asset's life extension factor is 3.0 and its life extension ceiling is 2.

In Year 5, Quarter 4 the asset is fully reserved. In year 9, quarter 1 you want to revalue the asset with a revaluation rate of 5%.

Revaluation Rules:

• Revalue Accumulated Depreciation = Yes
• Amortize Revaluation Reserve = No

To determine the depreciation adjustment, Oracle Assets uses the smaller of the life extension factor and the life extension ceiling. Since the life extension ceiling is smaller than the life extension factor, Oracle Assets uses the ceiling to calculate the depreciation adjustment. The new life used to calculate the depreciation adjustment is 2 ? 5 years = 10 years, the life extension ceiling of 2 multiplied by the original 5 year life of the asset.

Oracle Assets calculates the asset's depreciation expense under the new life of 10 years up to the revaluation period, and moves the difference between this value and the existing accumulated depreciation from accumulated depreciation to revaluation reserve.

Oracle Assets then determines the new asset cost using the revaluation rate of 5% and revalues the accumulated depreciation with the same rate. Oracle Assets calculates the asset's new life by multiplying the current life by the life extension factor. The asset's new life is 3 ? 5 years = 15 years. Oracle Assets bases the new depreciation expense on the revalued net book value and the new 15 year life.

The effect of the revaluation is illustrated in the following table:

Period (Yr, Qtr.)	Asset Cost	Deprn. Expense	Accum. Deprn.	Reval. Reserve
Yr1 to Yr4
Yr5,Q1	10,000.00	500.00	8500.00	0.00
Yr5,Q2	10,000.00	500.00	9000.00	0.00
Yr5,Q3	10,000.00	500.00	9,500.00	0.00
Yr5,Q4	10,000.00	500.00	10,000.00	0.00
Reval. 5%	10,500.00	0.00	*8,400.00	**2,100.00
Yr9,Q1	10,500.00	***75.00	8,475.00	2,100.00
Yr9,Q2	10,500.00	75.00	8,550.00	2,100.00
Yr9,Q3	10,500.00	75.00	8,625.00	2,100.00
Yr9,Q4	10,500.00	75.00	8,700.00	2,100.00
Yr10 to Yr15

Depreciation Adjustment (calculated using life extension ceiling)= 2,000

Account Description	Debit	Credit
Asset Cost	500.00
Accumulated Depreciation	1,600.00
Revaluation Reserve		2,100.00

Revaluation with a Revaluation Ceiling

Example 6: You own an asset which has been damaged during its life. You placed the asset in service in Year 1, quarter 1. The asset cost is $10,000, the life is 5 years, and you are using straight-line depreciation. You entered a revaluation ceiling of $10,300 for the asset.

In year 3, quarter 3 you revalue the asset's category with a revaluation rate of 5%.

Revaluation Rules:

• Revalue Accumulated Depreciation = No
• Amortize Revaluation Reserve = Yes

If Oracle Assets applied the new revaluation rate of 5%, the asset's new cost would be higher than the revaluation ceiling for this asset, so instead Oracle Assets uses the ceiling as the new cost. The ceiling creates the same effect as revaluing the asset at a rate of 3%. Oracle Assets bases the asset's new depreciation expense on the revalued asset cost.

The effect of the revaluation is illustrated in the following table:

Period (Yr, Qtr.)	Asset Cost	Deprn. Expense	Accum.Deprn.	Reval. Amortize	Reval. Reserve
Yr1 to Yr 2
Yr3,Q1	10,000.00	500.00	4,500.00	0.00	0.00
Yr3,Q2	10,000.00	500.00	5,000.00	0.00	0.00
Reval. *3%	10,300.00	0.00	0.00	0.00	**5,300.00
Yr3,Q3	10,300.00	***1,030.00	1,030.00	****530.00	4,770.00
Yr3,Q4	10,300.00	1,030.00	2,060.00	530.00	4,240.00
Yr4,Q1	10,300.00	1,030.00	3,090.00	530.00	3,710.00
Yr4,Q2	10,300.00	1,030.00	4,120.00	530.00	3,180.00
Yr4,Q3	10,300.00	1,030.00	5,150.00	530.00	2,650.00
Yr4,Q4	10,300.00	1,030.00	6,180.00	530.00	2,120.00
Yr5,Q1	10,300.00	1,030.00	7,210.00	530.00	1,590.00
Yr5,Q2	10,300.00	1,030.00	8,240.00	530.00	1,060.00
Yr5,Q3	10,300.00	1,030.00	9,270.00	530.00	530.00
Yr5,Q4	10,300.00	1,030.00	10,300.00	530.00	0.00

 

Account Description	Debit	Credit
Asset Cost	300.00
Accumulated Depreciation	5,000.00
Revaluation Reserve		5,300.00

Oracle Assets creates the following journal entries each period to amortize the revaluation reserve:

Account Description	Debit	Credit
Revaluation Reserve	530.00
Revaluation Amortization		530.00

 

Journal Entries for Tax Accumulated Depreciation Adjustments

Example: You place an asset in service in Year 1, Quarter 1. The asset cost is $4,000, the life is 4 years, and you are using straight-line depreciation. In Year 4, Quarter 1, your tax authority requests that you change the depreciation taken in Year 2 from $1000 to $800.

Oracle Assets creates the following journal entries for the reserve adjustment:

Account Description	Debit	Credit
Accumulated Depreciation	200.00
Depreciation Adjustment		200.00