Related topics

RH and RM Methods Overview

Remaining Value Over Remaining Life Conventions

Remaining Value Over Remaining Life Calculation

Remaining Value Over Remaining Life Example

Remaining Value Over Remaining Life Short-Year Calculation

Remaining Value Over Remaining Life Methods

The remaining value over remaining life (RV/RL) methods are similar to straight-line depreciation. What makes them unique is that while the straight-line calculation is static, the remaining value over remaining life calculation is dynamic. If there is a change in a critical value (for example, the asset's estimated life), the straight-line method cannot adjust its future calculations so that the asset is fully depreciated at the end of its life. The remaining value over remaining life methods, on the other hand, take the asset's remaining depreciable basis and depreciates that amount evenly over the asset's remaining estimated life. Each method uses a different averaging convention as indicated in its name.

Remaining Value Over Remaining Life, half-year (Method RH)

Remaining Value Over Remaining Life, midmonth (Method RM)

Remaining Value Over Remaining Life, full-month (Method RV)

Changing an asset to a Remaining Value Over Remaining Life Method

Financial Accounting

Changing an existing asset’s method to a remaining value over remaining life (RV/RL) method spreads any adjustment amount evenly over the rest of an asset's life from the asset’s Beginning Date. This methodology is the suggested approach to handling a change in an accounting estimate under FASB Accounting Standards Codification (ASC) 250, Accounting Changes and Error Corrections.

Tax Accounting

Use an RV/RL method for U.S. Federal income tax purposes to evenly spread the remaining value of the asset over its remaining life as of the beginning of the tax year. This is appropriate when:

  • changing the estimated life of an existing asset depreciated under a straight-line method (MF100, MA100, AD, AA, SF or SB), or
  • changing from an accelerated method (200% or 150% declining balance) to a straight-line method after the place-in-service year of the asset.

It is important to choose the correct RV/RL method to maintain the same averaging convention used when the asset was placed in service. As stated in Federal Tax Regulations, regulation, §1.168(i)-4, Internal Revenue Service, Changes in Use:

If there is a change in the use of MACRS property, the applicable convention that applies to the MACRS property is the same as the convention that applied before the change in the use of the MACRS property. However, the depreciation allowance for the year of change for the MACRS property is determined without applying the applicable convention, unless the MACRS property is disposed of during the year of change.

 

Determining the original averaging convention. You can view an asset’s convention on the Quick Projection Report before changing to an RV/RM method. Methods MF100, MA100, AD, and AA use either the half-year (HY) or mid-month convention (MM), depending on the property type and estimated life of the asset when placed in service initially. Additionally, if the mid-quarter (MQ) convention rules applied for a tax year, assets using the HY convention would have been required to use the MQ convention. Methods SF and SB always use the full month convention.

Before changing a critical depreciation field, we recommend that you print the Main tab of the asset you are changing to insure you have the original asset information or perform a backup of the company prior to making the change, in case you do not get the desired outcome.

You can change from any other depreciation method to a remaining value over remaining life method. To do this, follow these steps:

  1. Calculate depreciation through the date that the conversion to remaining value over remaining life is to be effective.
  2. Change the Depreciation Method field selection to RH, RM or RV. The system displays a Critical Depreciation Change message.

  3. Select the Yes button to confirm that you want the system to reset depreciation. The system displays the Critical Depreciation Change dialog and you have the option to reset depreciation to one of four dates:

    • Placed-in Service date
    • Beginning date (if a Beginning date exists)
    • Period Close date (if a Period Close date exists)
    • Current Through dates

  4. Select the Current Thru date and select OK. The system retains the Current Thru date values and overwrites the information in the Beginning fields, if any, with the Current Thru values.

  5. Optional. Change the value of any other critical fields (i.e. Estimated Life) if needed and repeat steps 3 and 4.

  6. Select the Save Asset button to save the critical changes.

Note: If Section 179 had been taken for the asset, the Section 179 Deduction field is zeroed out. Section 179 can be taken for methods RH and RM, but not RV. You can reenter the Section 179 amount after the depreciation method has been switched to RH or RM.

Note: If Section 168 has been taken for the asset, the Section 168 Allowance % and Amount fields are disabled and zeroed out. Section 168 is not allowed for depreciation methods RH, RM or RV. But to account for the 168 Allowance Amount already taken in the first year of the asset’s life, adjust the beginning amounts in the Beginning Depreciation Fields by adding the Section 168 to the amounts that have already populated in the fields.