DEPRECIATION AND AMORTIZATION - 8616
(Revised and renumbered from 8617)
Depreciation
Depreciation is the mechanism used to allocate the cost of a tangible asset over the estimated useful life of the asset. The cost of capitalized tangible assets is equitably allocated as an expense to each of the benefitting periods through the depreciation process.
Amortization
Amortization is the mechanism used to allocate the cost of an intangible asset over the estimated useful life of the asset. The cost of capitalized intangible assets is equitably allocated as an expense to each of the benefitting periods through the amortization process.
For legacy agencies/departments, depreciation/amortization is performed only by those proprietary funds which conduct enterprise or internal service fund operations. FI$Cal agencies/departments will perform depreciation/amortization for assets of all funds.
Depreciation/Amortization Method
The depreciation/amortization method used by the state is the straight-line method with no salvage value of capital assets.
Annual Depreciation = Cost / Asset Useful Life
The state uses the modified approach to report the cost of its highway infrastructure assets. See SAM section 8610.6.
Depreciation/Amortization Requirements
The following requirements should be followed when recording and reporting depreciation/amortization expense:
- Depreciation/amortization begins when an asset is placed in service.
- Depreciation/amortization ends when an asset is removed from service, or its capitalized cost has been entirely expensed.
- Source documents supporting the in-service date should be retained and used consistently to maintain a satisfactory system of internal controls as required by the State Leadership Accountability Act. See Government Code sections 13400-13407.
- Internally generated intangible assets in progress and internally constructed tangible assets in progress should not be amortized or depreciated. See SAM sections 8635-8636.