Required; found on the Main data tab. For finance leases, the method for depreciating the asset. For (This selection is ignored for ASC 842 operating leases, as the depreciation methodology is defined in the standard as tied to the amortization of the liability. The only time depreciation on an operating lease is straight line is if the asset is partially impaired - after a partial impairment, the remaining asset is depreciated straight line.) The following methods are available:
Straight line (default unless changed in System Options) - An equal amount of depreciation is taken for every day or month of the depreciation life, depending on whether you have selected daily or monthly depreciation calculations in System Options.
Straight Line full month - A full month of depreciation is recorded in the first calendar month a lease is active if the begin date is the 1st to 15th of a month; otherwise, depreciation starts at the beginning of the following month. If the end date of the lease is the 1st to 14th of a month, depreciation ends at the end of the prior month; otherwise, a full month of depreciation is taken for the final month.
SL/Half year convention - In the first and last fiscal years, a half year of straight-line depreciation. In the middle years of the lease, depreciation is taken at a normal rate. The half year of depreciation is taken even if the lease is active for less than half the year, so depreciation in the first and last years on a per-month basis could be more or less than the middle years. (Thus, a lease that starts at the beginning of the seventh month and ends at the end of the sixth month of a fiscal year will have identical depreciation using this method or standard straight line.)
Declining balance - 150% and 200% versions are offered, meaning that the starting depreciation is, respectively, 1.5 or 2 times straight-line depreciation. For the first fiscal year, a mid-quarter convention is used (for example, if a lease starts at any point in the fiscal second quarter, 7.5 months worth of depreciation is spread over the active part of the fiscal year). All declining balance routines convert to straight line at the optimal year, and then run straight line over the remaining life of the lease. This methodology is essentially identical to that used by the IRS for MACRS depreciation. The results will match the IRS tables only if the depreciation life length exactly matches a length listed by the IRS (see IRS Publication 946, How to Depreciate Property, available at www.irs.gov).
No depreciation - The asset will remain undepreciated for the life of the lease.