Depreciation is a way of allocating the value of assets over their entire expected useful life. The company's depreciation deductions are the main source of money for the acquisition of new fixed assets, therefore, each accountant should approach the calculation of their amounts thoughtfully and scrupulously.
From an economic point of view, the accrual of depreciation involves the attribution of past costs to current expenses in order to balance the amounts of income and expenses as much as possible. Since 2002, there have been 2 ways of calculating depreciation: non-linear and linear. In addition, in order to correctly calculate the amount of depreciation, it is necessary to know the useful life of each fixed asset and its value.
How to choose the right depreciation method
The straight-line method of depreciation assumes the write-off of the cost of fixed assets to expenses in equal parts over the entire period of its use. It is the most common because of its ease of use. The use of the linear method is optimal for those fixed assets, the service life of which is limited by physical wear and tear, and not obsolescence.
The non-linear method is sometimes called the accelerated method, since at the beginning of the use of a fixed asset, the amount of depreciation charges on it is maximum, and then it gradually decreases. There are several options for calculating depreciation in a non-linear way, for example, by:
- diminishing balance;
- write-off of cost according to the sum of the number of years of useful life;
- write-off of the cost in proportion to the volume of products (works).
The choice of the method of calculating depreciation is carried out by the management of the organization and is fixed in its accounting policy.
Useful life of property, plant and equipment
All fixed assets at the disposal of the company must be correctly classified and assigned to certain depreciation groups. There are 8 depreciation groups, their list and characteristics are presented in the Decree of the Government of the Russian Federation of 01.01.2002 No. 1. Each group contains homogeneous objects with the same terms of their use. The assignment of objects to a specific group is made on the basis of the expected period of its use and the possibility of its obsolescence.
The procedure for calculating the amounts of depreciation deductions
Most often, accountants need formulas for calculating depreciation amounts using the straight-line method and the declining balance method.
- Straight-line depreciation is calculated using the following formulas:
Depreciation rate = 100% / number of months of use of the fixed asset.
Monthly depreciation = Cost of a fixed asset / number of months it has been in use.
- Depreciation using the diminishing balance method is calculated using the following formulas:
Depreciation rate = 100% * Acceleration ratio / number of years of use of the asset.
Monthly depreciation = Fixed asset value * Depreciation rate / 100% / 12 months.
