Calculation of depreciation charges

Amortization is one of the most controversial issues in accounting and management accounting. The fact is that it is possible to reliably determine to what extent the fixed assets of an enterprise lose their value during the production cycle is impossible, therefore, it is used to construct simplified models for its calculations. Meanwhile, depreciation, although it is only a product of mathematical calculations, significantly affects the profit of the enterprise, and therefore, to pay taxes to them. That is why the calculation of depreciation is given such an important role in management and accounting.

Calculation of depreciation charges, in many respects, depends on the chosen service life of the equipment. Despite, That there are certain norms, it is impossible to accurately predict when equipment will need to be changed due to moral or physical deterioration. Therefore, as a service life, a certain averaged, maximally objective value is chosen. Even more difficult is to determine the residual value, i. E. Cost of equipment, at the end of the expected service life. It is impossible to accurately determine the condition of equipment after a decade, and the situation on the market is completely unpredictable at all. Therefore, the residual value is determined literally "by eye".

Further Calculation of depreciation charges Is made on the basis of the data considered above. The residual value is deducted from the initial cost of the equipment, and the resulting amount is written off into the costs of the enterprise throughout the life of the calculated life. Depreciation can be written off in various ways, and in many cases companies have the right to choose the most suitable way for them. Today, the calculation of depreciation is carried out in four basic ways: linear or one of a group of non-linear ones.

The linear method assumes a uniform write-off of the equipment cost. This method is considered simplified and is suitable for accounting for simple equipment and simple situations in which leasing, rent, etc. are not involved. The total value to be written off is divided by the period of operation, and the amount received is included in the corresponding item of expenditure each year.

The use of accelerated depreciation methods is based on the fact that at the beginning of the service the equipment loses more of its value than in the final stages, therefore, in order to accurately reflect the value on the balance sheet, it is necessary to reflect this trend when depreciation is charged to expenses. The most popular nonlinear method is the method of decreasing residue. Calculation of depreciation charges in this way involves the use of not all equipment cost in calculations, but the balance that is reflected on the balance sheet in the current year. That is, from year to year the balance will decrease, and, consequently, the depreciation deductions themselves.

There is also a relatively infrequently used method of calculating depreciation based on output. First, a certain limit on the output of equipment is established, and then a fraction equal to the share of output to the established limit is subtracted from its value.

Regardless of the chosen method, depreciation charges remain inside the enterprise itself, therefore, use of depreciation charges is a rather important issue. Logically, they need to be used to purchase new equipment. And although many managers, in fact, perceive depreciation as a source of investment, it can be used for labor payment, raw material purchases, etc. One way or another, you need to choose the most optimal solution for the company, because an effective approach to solving the amortization issue is a guarantee of the company's prosperity in the long term.