Why Asset Depreciation Matters for Maintenance Teams
The CMMS that maintenance teams use to organize their operations is often accessed by other departments, including the finance department. This department requires access to the software for bookkeeping and tax purposes.
From the CMMS, accounting and tax specialists review minor and major repairs that are made to capital assets. Minor repairs are deducted immediately; major repairs or improvements are depreciated over time.
After retrieving data from the CMMS, the finance team retrieves data from other software like enterprise asset management (EAM) software. For instance, some of our customers use our CMMS for tracking repairs and another system for tracking an asset’s value over the years. This is inefficient.
To help remove these inefficiencies, CMMS providers are making it easier for organizations to store all asset-related data in one place with features like depreciation tracking. This feature makes it easier for maintenance teams to integrate their efforts into the broader efforts of the organization. It also makes it easier for maintenance teams to un-silo themselves.
We’ll elaborate on these benefits below, then show you how depreciation tracking works inside a CMMS.
Benefits of tracking asset depreciation in a CMMS
Eliminate redundant data entry
Instead of entering the same data into EAM software, ERP software, and accounting software like QuickBooks, asset managers can log data once in the CMMS. The CMMS then syncs with the other software.
For instance, when a major repair is completed on an asset, the maintenance team logs parts and cost data in the CMMS. Then, instead of the asset manager emailing the finance team about the repair, the CMMS automatically sends information to QuickBooks.
This eliminates unnecessary communication and redundant data entry. Without hearing from the maintenance team, repair costs are already in the finance system and ready to be depreciated appropriately.
Align finance and maintenance teams
To balance an organization’s books, an accountant might depreciate a $100,000 asset over a span of 10 years (the asset’s useful life). Every year, using the straight line depreciation method, the asset contributes to a $10,000 expense instead of a $100,000 expense in year one, helping paint a more accurate picture of profit and loss.
While depreciation is an allocation process, not a valuation process, the maintenance team can align better with the accounting team when bookkeeping data is in the CMMS.
For instance, if the asset breaks down in year 8 and has a depreciation value of $20,000 (($100,000-($10,000 * 8 years)), the maintenance team knows to consider purchasing a new asset instead of making a 5-digit repair. No calls to the finance team needed. They have all the data they need in the CMMS to consider this option.
Reduce expenses with less software
As previously mentioned, some of our customers use our CMMS in addition to EAM software. Usually this is unnecessary, especially when the CMMS has asset-specific features like downtime tracking, warranty tracking, and depreciation tracking.
When both CMMS and EAM software can cost tens of thousands of dollars, it’s irresponsible to have two systems with overlapping features.
How to track asset depreciation in a CMMS
To start tracking depreciation you need four values:
- Purchase price — the amount paid to acquire the asset.
- Residual price — the asset’s worth at the end of its useful life, or how much you can expect to sell it for. This is also called the salvage value.
- Useful life — is how long the asset is expected to help an organization create product and generate revenue. You can estimate useful life with recommendations from EY (example) and other financial institutions.
- Placed-in-service date — the date the asset is initially activated in the facility.
After adding these values to the CMMS the depreciation rate and annual depreciation value is automatically calculated.
The maintenance team, finance team, and any other team in the organization can easily access this data in the CMMS. You can also automatically send this data to other systems with an API integration (like the aforementioned Quickbooks example).
- What is Depreciation, And How Does Depreciation Work? (Fit Small Business) — An excellent primer for those totally new to the concept of depreciation.
- An Explanation of Manufacturing Overhead (Accounting Coach) — This short article explains how asset depreciation and maintenance-related costs contribute to manufacturing overhead.