Managing fixed assets is an essential part of financial operations, but calculating depreciation can become complex. Especially when organisations need to apply accelerated or bonus depreciation to eligible assets.
With the latest enhancements in Microsoft Dynamics 365 Business Central, organisations can now manage bonus depreciation directly within the Fixed Assets module, providing greater flexibility, improved reporting, and clearer audit trails.
What is Bonus Depreciation?
Bonus depreciation allows businesses to immediately depreciate a portion of an asset’s cost in the year it is acquired, rather than spreading the full depreciation expense over the asset’s useful life. This can help organisations accelerate tax deductions, improve cash flow and support compliance with applicable tax regulations.
Setting Up Bonus Depreciation
Before bonus depreciation can be used, two new settings must be configured in Fixed Asset Setup.
Bonus Depreciation Percentage
Enter the Maximum bonus depreciation percentage that can be applied to fixed assets. For example, if your organisation allows full bonus depreciation, set this value to 100%.
Bonus Depreciation Effective Date
Enter the date from which the assets become eligible for bonus depreciation. Any asset acquired on or after this ate can be considered for bonus depreciation.
Note: These settings create the default rules for bonus depreciation when option is selected in individual assets. These can be applied or adjusted per asset.
Applying Bonus Depreciation to Individual Assets
On the Fixed Asset Card, on each Depreciation Book, two new fields are available:
- Use Bonus Depreciation (slider)
- Bonus Depreciation %
Bonus depreciation is applied at the individual fixed asset level, giving users the flexibility to enable it only for eligible assets.
When Use Bonus Depreciation is turned on, the Bonus Depreciation % is automatically populated with the default percentage configured in the Fixed Assets setup. Users can accept the default or enter a different percentage for a specific asset if required.
This allows organisations to maintain a standard bonus depreciation policy while providing the flexibility to accommodate exceptions for individual fixed assets.
How the Calculation Works
When depreciation is calculated, Business Central first determines the standard depreciation amount based on the asset depreciation method, useful life and current book value.
If Bonus depreciation is enabled the calculation changes and is processed in the following order:
- Calculate the bonus depreciation amount based on the bonus percentage assigned to the asset.
- Reduce the asset’s book value by the bonus depreciation amount.
- Calculate the ongoing depreciation on the remaining book value.
Because the asset’s carrying value is reduced upfront, future depreciation expenses are calculated on the lower remaining balance.
Example:
Assume a fixed asset is purchased for $12,000 and has a useful life of 5 years (60 months).
| Without Bonus Depreciation | With 25% Bonus Depreciation |
|
Acquisition Cost: $12,000 Monthly Depreciation: $200 ($12,000 ÷ 60 months)
|
Step 1: Calculate Bonus Depreciation Acquisition Cost: $12,000 Bonus Depreciation Rate: 25% Bonus Depreciation Amount: $3,000 Step 2: Reduce the Book Value Original Cost: $12,000 Less Bonus Depreciation: $3,000 Remaining Book Value: $9,000 Step 3: Calculate Ongoing Depreciation Remaining Value: $9,000 Useful Life: 60 months Monthly Depreciation: $150 |
Result:
| Description | Amount |
| Acquisition Cost | $12,000 |
| Bonus Depreciation (25%) | $3,000 |
| Remaining Book Value | $9,000 |
| Monthly Depreciation Before Bonus | $200 |
| Monthly Depreciation After Bonus | $150 |
This makes it easy to see how bonus depreciation accelerates the recognition of depreciation expense while reducing ongoing depreciation calculations.
Enhanced Visibility and Reporting
Bonus depreciation is tracked separately from standard depreciation, making it easier to review, report on and audit fixed asset activity.
To support this, Business Central has a dedicated Fixed Asset Posting Type for bonus depreciation. This allows organisations to:
- Clearly distinguish bonus depreciation from standard depreciation
- Improve reporting accuracy
- Simplify auditing and review processes
- Provide greater visibility into asset movements
When reviewing Fixed Asset Ledger Entries, users can see:
- Acquisition Cost
- Bonus Depreciation
- Depreciation
By recording each transaction against its own posting type, Business Central provides a clear audit trail, making it easier to understand how an asset value has changed over time.