Derogatory depreciation method (France)—Fixed Assets Management

The Derogatory depreciation method (DER) is for organizations operating in France that must apply different depreciation for accounting and tax reporting. It supports compliance with French tax regulations while maintaining consistent accounting depreciation.

Under French tax regulations, certain assets are eligible for declining (fiscal) depreciation, which allows higher depreciation in the early years of an asset’s life compared to daily straight‑line (accounting) depreciation. This creates a gap between accounting and fiscal depreciation.

When you use the Derogatory depreciation method, Fixed Assets Management calculates daily depreciation for accounting, declining depreciation for fiscal purposes, and automatically records derogatory entries to capture the temporary difference between the two.

This method is available only when the entity's operating country is France, or when working at the top level of your company.

Convention and useful life

The Derogatory method supports the Full month convention. Assets using the Derogatory method must have a useful life of at least 36 months (3 years).

How the Derogatory method is calculated

When you select Derogatory as the depreciation method, Fixed Assets Management calculates depreciation and derogatory entries using the steps below.

Fixed Assets Management calculates daily straight-line depreciation using the same formulas as the Daily method.

This amount is posted to the General Ledger as a depreciation expense.

Fixed Assets Management performs two intermediate calculations to determine the fiscal depreciation:

  • Straight‑line with coefficient = Daily depreciation rate × coefficient, applied to the asset’s net book value.

  • Residual (straight‑line without coefficient) = The remaining net book value spread evenly over the remaining useful life.

For each period, Fixed Assets Management compares the two values above and selects the higher amount as the declining depreciation for the period.

When the residual amount becomes higher than the straight‑line‑with‑coefficient amount, Fixed Assets Management automatically switches, as required by French tax rules.

The coefficient is determined by law and is based on the asset’s useful life.

  • 1.25 for assets with a useful life of 36 to 48 months

  • 1.75 for assets with a useful life of 49 to 72 months

  • 2.25 for assets with a useful life of 73 months or more

If declining depreciation is higher than daily depreciation:

  • Provision = Declining − Daily

  • Reversal = 0

If daily depreciation is higher than declining depreciation:

  • Provision = 0

  • Reversal = Daily − Declining

Derogatory provisions and reversals are posted to the General Ledger.

For each period:

  • Derogatory balance = Prior balance + Provision − Reversal

The derogatory balance represents the cumulative regulated provision over time. This balance is progressively reduced through reversals until it reaches zero by the end of the asset’s depreciation life.

Example

Scenario:

  • Useful life: 60 months (5 years)

  • Convention: Full month

  • Asset cost: £1,000.00

  • Salvage value: £0.00

  • Depreciable cost: £1,000.00

  • In-service date: March 12th, 2023

  • First fiscal month: January

Depreciation schedule:

Depreciation schedule
Period Scheduled posting date Depreciation amount for daily method (£) Depreciation amount for declining method (£) Derogatory provision (£) Derogatory reversal (£) Derogatory balance (£)
1 March 31st, 2023 10.96 29.17 18.21 0.00 18.21
2 April 30th, 2023 16.44 29.17 12.73 0.00 30.94
3 May 31st, 2023 16.99 29.17 12.18 0.00 43.12
4 June 30th, 2023 16.44 29.17 12.73 0.00 55.85
5 July 31st, 2023 16.99 29.17 12.18 0.00 68.03
6 August 31st, 2023 16.99 29.17 12.18 0.00 80.21
7 September 30th, 2023 16.44 29.17 12.73 0.00 92.94
8 October 31st, 2023 16.99 29.17 12.18 0.00 105.12
9 November 30th, 2023 16.44 29.17 12.73 0.00 117.85
10 December 31st, 2023 16.96 29.14 12.18 0.00 130.03
11 January 31st, 2024 16.94 20.66 3.72 0.00 133.75
12 February 29th, 2024 15.85 20.66 4.81 0.00 138.56
13 March 31st, 2024 16.94 20.66 3.72 0.00 142.28
14 April 30th, 2024 16.39 20.66 4.27 0.00 146.55
15 May 31st, 2024 16.94 20.66 3.72 0.00 150.27
16 June 30th, 2024 16.39 20.66 4.27 0.00 154.54
17 July 31st, 2024 16.94 20.66 3.72 0.00 158.26
18 August 31st, 2024 16.94 20.66 3.72 0.00 161.98
19 September 30th, 2024 16.39 20.66 4.27 0.00 166.25
20 October 31st, 2024 16.94 20.66 3.72 0.00 169.97
21 November 30th, 2024 16.39 20.66 4.27 0.00 174.24
22 December 31st, 2024 16.95 20.66 3.71 0.00 177.95
... ... ... ... ... ... ...
47 January 31st, 2027 16.99 12.47 0.00 4.52 84.21
48 February 28th, 2027 15.34 12.47 0.00 2.87 81.34
49 March 31st, 2027 16.99 12.47 0.00 4.52 76.82
50 April 30th, 2027 16.44 12.47 0.00 3.97 72.85
51 May 31st, 2027 16.99 12.47 0.00 4.52 68.33
52 June 30th, 2027 16.44 12.47 0.00 3.97 64.36
53 July 31st, 2027 16.99 12.47 0.00 4.52 59.84
54 August 31st, 2027 16.99 12.47 0.00 4.52 55.32
55 September 30th, 2027 16.44 12.47 0.00 3.97 51.35
56 October 31st, 2027 16.99 12.47 0.00 4.52 46.83
57 November 30th, 2027 16.44 12.47 0.00 3.97 42.86
58 December 31st, 2027 16.96 12.46 0.00 4.50 38.36
59 January 31st, 2028 16.75 0.00 0.00 16.75 21.61
60 February 29th, 2028 15.67 0.00 0.00 15.67 5.94
61 March 31st, 2028 5.94 0.00 0.00 5.94 0.00

Journal entries:

The following examples show how depreciation and derogatory entries are recorded in the General Ledger for the above schedule.

GL account Debit (£) Credit (£)
Depreciation expense 10.96  
Provision derogatory 18.21  
Accumulated depreciation   10.96
Accumulated provision derogatory   18.21
GL account Debit (£) Credit (£)
Depreciation expense 16.99  
Accumulated provision derogatory 4.52  
Accumulated depreciation   16.99
Reversal derogatory   4.52

If the asset is disposed on May 1st, 2023, the remaining derogatory balance is fully reversed as part of the disposal.

GL account Debit (£) Credit (£)
Asset   1000.00
Accumulated depreciation 27.40  
Gain or loss 972.60  
Reversal derogatory   30.94
Accumulated provision derogatory 30.94  
If the asset is partially disposed, the derogatory balance is proportionally reduced.

How to set up and use derogatory depreciation

  1. Create General Ledger accounts for Accumulated provision, Provision derogatory, and Reversal derogatory.

  2. Set up asset classifications.

    • Assign the GL accounts.

    • In the Depreciation rules section, select the Derogatory method.

    After saving, you can review the coefficient.

  3. Assign classifications to assets.

    You can optionally override the GL accounts and depreciation rules at the asset level.

  4. Place the assets in service.

  5. Review the depreciation schedule.

    The schedule includes columns for daily depreciation, declining depreciation, derogatory provision, derogatory reversal, and derogatory balance based on daily.