Two figures from one machine, and only one of them is depreciation
A Malaysian company that buys a machine has to produce two separate figures from it for the rest of that asset's life. One is accounting depreciation, prepared under the financial reporting framework the company applies and shown in its financial statements. The other is capital allowance under Schedule 3 of the Income Tax Act 1967, computed under its own statutory rules and appearing only in the tax computation. The two are not versions of the same number. Accounting depreciation is added back in the tax computation and capital allowance is deducted in its place, so both have to be maintained accurately and in parallel for every qualifying asset, every year, until the asset leaves the business.
The configuration question that follows is narrow and practical: where does the second set of figures live? A spreadsheet kept beside the fixed asset register works until the register grows, until assets are disposed of part-way through their life, or until someone has to explain a difference between the two bases that nobody can now reconstruct. Dynamics 365 Business Central's Fixed Asset module can carry both bases against the same assets, but the mechanism that makes that work is less obvious than adding a column.
What Schedule 3 computes, and what it computes it on
Capital allowance is given as a combination of initial allowance and annual allowance on qualifying expenditure. The Inland Revenue Board of Malaysia's Public Ruling No. 6/2015, Qualifying Expenditure and Computation of Capital Allowances, sets out how qualifying expenditure is established and then used in that computation, and defines residual expenditure as the cost of the asset less initial allowances and annual allowances, or a notional allowance equal to the annual allowance if it was claimed or should have been claimed. Whether an asset is plant at all is a separate question, addressed in Public Ruling No. 12/2014, and it turns on the character and function of the asset rather than on how the asset was classified in the accounts. Rates are set by Schedule 3 and the relevant Income Tax Rules and are revised from time to time; confirm the applicable rates, and any accelerated allowance, against the Board's own current published material rather than against a percentage sitting in a system. These are general statements of the mechanism, not a determination of any company's entitlement.
Three features of that mechanism matter once it is put inside an asset register. The allowance is computed on qualifying expenditure rather than on what remains of the asset's carrying amount. The initial allowance is a one-off amount in the year the expenditure qualifies, sitting on top of that year's annual allowance rather than replacing it. And entitlement depends on facts that live outside the register — ownership of the asset, and its use for the purposes of the business at the end of the basis period. Public Ruling No. 6/2015 also treats assets acquired on hire purchase differently again: qualifying expenditure is the capital portion of the instalment payments actually made in the basis period, so the amount the tax basis starts from is not the amount the accounting basis starts from.
Business Central already holds more than one basis per asset
Microsoft's documentation on setting up fixed asset depreciation describes the container this needs. A depreciation book defines how a group of assets is depreciated; a book assigned to a particular asset becomes a fixed asset depreciation book; and, in Microsoft's own words, an unlimited number of depreciation books can be set up for a fixed asset. Microsoft's stated reason for the feature is close to the Malaysian position without being about it: many businesses use straight-line depreciation in their financial statements and an accelerated method for income tax purposes.
The second element is the Integration FastTab on the depreciation book card, where a check box for each fixed asset activity determines whether that activity posts through the Fixed Asset G/L Journal or the Fixed Asset Journal. A book with no integration selected keeps its own complete entry history without touching the general ledger. That is precisely what a capital allowance basis needs: a full parallel record of allowances, attached to the same assets, that never reaches the financial statements and never has to be excluded from them later.
Entering each asset once
The failure mode worth designing against is a second register maintained by hand that slowly drifts from the first. Business Central offers two native mechanisms. The Create FA Depreciation Books batch job assigns a book across a filtered set of assets in a single run, with a Copy from FA No. field that populates the new books from an existing one. Separately, the Part of Duplication List toggle on a depreciation book card duplicates entries automatically. Microsoft's worked example is directly on point: a book that integrates with the general ledger and uses the fixed asset G/L journal, and further books that do not integrate and use the fixed asset journal, with entries posted in the first duplicated into the others.
Duplication carries acquisition and disposal events across, which is what keeps the two bases attached to the same physical asset and the same acquisition date. It does not carry the allowance calculation across, and it should not: the whole point of the second book is that it calculates differently.
Where the built-in methods fit, and where they do not
Business Central supports eight depreciation methods, and the differences between them matter here more than usual. Microsoft's documentation on depreciation methods for fixed assets gives the formulas. Straight-Line driven by a depreciation period calculates the amount as book value less salvage value, apportioned across remaining depreciation days — a mechanism that re-spreads whatever is left over the life still to run. An allowance computed as a fixed percentage of original qualifying expenditure does not behave that way, and a book configured with a depreciation period will not reproduce it.
Straight-Line driven by a fixed yearly percentage is the closer fit: Microsoft's formula applies that percentage to the depreciable basis rather than to the remaining book value. Declining-Balance 1 applies its percentage to the book value at the beginning of the year, which is a reducing-balance pattern rather than a Malaysian one. Neither, on its own, produces a one-off initial allowance in the first year followed by a flat annual allowance thereafter. Where that combined pattern has to be reproduced exactly, the user-defined depreciation method and its depreciation tables are the built-in route to a bespoke schedule, and the Manual method exists for assets that are not to be calculated at all.
Two further details are easy to miss. The Calculate Depreciation batch job normally uses a standardised year of 360 days with twelve 30-day months, unless the Fiscal Year 365 Days field is selected — so a Business Central year is not automatically a calendar year. And Microsoft explicitly recommends against changing the setup of a depreciation book for entries that have already been posted, because the change does not affect posted entries and leaves the book's statistics misleading. Both are reasons to settle the tax book's configuration before it is populated rather than after.
What the second book still cannot decide
A correctly configured tax book produces a consistent, traceable schedule. It does not decide whether an asset is plant, whether the ownership and business-use conditions were met at the end of the basis period, or whether a year's allowance was claimed or should have been claimed and therefore reduces residual expenditure as a notional allowance. It does not know that the company's basis period may not coincide with the fiscal year defined in the system. It does not apply the restriction on carrying unabsorbed allowances forward, which operates in the tax computation against the relevant business source rather than inside an asset register. SCSB treats the second depreciation book as an instrument for producing and evidencing a schedule, not as a substitute for the judgement that decides what belongs in it.
Decisions to settle before configuration starts
- Which depreciation book is the accounting basis and integrates with the general ledger, and which is the tax basis and does not.
- Whether the tax book reproduces the allowance pattern through a fixed yearly percentage, a user-defined depreciation table, or entries prepared manually, and who verifies the first full year against an independently prepared computation.
- How assets acquired on hire purchase are handled, given that qualifying expenditure follows instalments paid rather than the accounting acquisition cost.
- How the tax book is assigned to every new asset by default, so an addition cannot enter the register with an accounting basis only.
- Which review confirms, each year, that the population of assets in the tax book still matches the population in the accounting book, and what explains any difference.
When this can be managed without outside help
A company with a short asset register, few additions each year, no hire purchase and a single business source may reasonably maintain its capital allowance schedule outside the system, prepared from the fixed asset register and reviewed alongside the tax computation. At that scale a second depreciation book adds configuration without adding much control. The case for building the second basis inside Business Central grows with the number of additions and disposals, with hire purchase or assets brought into the business after non-business use, with more than one business source, and above all where the two bases have already diverged and no one can currently explain by how much or why.
What to do next
Confirm the applicable rates, conditions and treatment directly against the Inland Revenue Board of Malaysia's current published material before relying on this article for anything beyond the mechanics of configuration; those determinations sit with the Board, not with this article and not with an asset register. Where the requirement is to build and maintain this dual-basis register inside Dynamics 365 Business Central, Business Central financial reporting automation can be discussed within an agreed scope.
General-information limitation
This article is general technical information about fixed asset and depreciation book configuration concepts in Dynamics 365 Business Central. It is not tax, legal or accounting advice, does not determine any company's entitlement to capital allowance or the rates applicable to it, and does not confirm that a particular configuration satisfies the Inland Revenue Board of Malaysia's current requirements. The Board's public rulings and the Income Tax Act 1967, and Business Central's own functionality, are set by their respective publishers and are revised over time. Confirm the current position against the Board's published material and Microsoft's current Business Central documentation before implementation.
Dynamics 365 Business Central and Microsoft are trademarks of the Microsoft group of companies.