How to accelerate depreciation? Accelerated Depreciation Method

From the effectively organized management and the degree of information support of its services, the quality of financial and economic management of the company depends. To date, a small number of domestic enterprises are distinguished by the established accounting system and organized management, ensuring the availability of information for analysis and operational management. In doing so, it must be accurate and objective.

Accounting services should have a small number of indicators that will satisfy the maximum number of users. Accounting data should be formed to make the right decisions aimed at effective management of enterprise activities.

The management of each enterprise cares about the effectiveness of the application of property for the rational development of business, since fixed assets have a rather high cost. To update its active part, you can use special methods, for example, the method of accelerated depreciation.

What is depreciation?

Depreciation of fixed capital as a category of the economy is part of the costs that will be included in production costs. In addition, it is a cumulative financial source of income used to restore capital investments.

Fixed assets for a long time involved in various activities of the organization. However, they gradually wear out and share their own cost between the costs of circulation and production. Depreciation will be accrued on the company's fixed assets , regardless of whether they are acting or not.

How is depreciation charged?

Accrual of depreciation is allowed only in the ways provided for by law. To date, in Russia, this procedure is performed by one of the following options:

• By the method of decreasing balance ;
• Linear method;
• Write-off of cost on the sum of the term of application, expressed in years;
• The performance of the write-off of the price in proportion to the volume of work;
• Acceleration of depreciation.

Use of one of the available methods for calculating depreciation is carried out during the entire period of useful use.

What is accelerated depreciation?

Accelerated depreciation is a rapid transfer of the price of fixed capital objects to the cost of products produced with their help. Mainly Russian literature, which is devoted to tax and accounting, excludes the existence of a clearly defined boundary in the interpretation of the concept of the mechanism of accelerated depreciation and the methods of its calculation.

The essence of the mechanism is that, at the beginning of the application, the amounts will substantially exceed the depreciation charges, which are usually accrued at the end of the useful life of the fixed capital object.

When is the accelerated depreciation method used?

Accelerated depreciation is applied in the following cases:

• For assets that are distinguished by a decrease in the volume of output with a period of use;
• The depreciation of assets comes quickly;
• The expenses for repair are increasing rapidly during operation.

This method applies to the active part of fixed capital, which was put into effect for the release of funds, is aimed at purchasing the latest equipment and materials, as well as expanding the export of goods. This is done in cases where a mass replacement of old equipment with a new level of performance is necessary.

The method of accelerated depreciation also applies to various vehicles and equipment, if the regulatory period of their operation does not exceed three years. The aircraft and motor technology is also subjected to this procedure, but at the same time the operating life is determined by the hours of operation. In addition, buildings and new enterprises that have an increased workload on fixed assets are subject to accelerated depreciation.

The purpose of accelerated depreciation

Accelerated depreciation allows you to write off the value of the capital stock much faster than provided for by established norms. The purpose of its use is to stimulate the flow of investment. This is due to the fact that the investment of capital entails the receipt by the enterprise of the right to defer payment of fees and taxes.

If accelerated depreciation is used, tax liabilities will be reduced, as the company's profit will not include the amount of depreciation. Once the asset value has been fully amortized, the profit of the organization will increase, and, consequently, the amount of taxes will increase.

Calculation of accelerated depreciation

If a non-linear method is used, the depreciation amount for one month will be determined as the product of the residual value of the object. It is calculated using the formula:

• K = Koef: n x 100%, where
  
  K is the depreciation rate to the initial price of the item, which is expressed as a percentage;
  Koef - the acceleration coefficient, which depends on the legal norms;
  N is the useful life of the object, expressed in months.

After the residual price of the equipment is 20% of the original amount, it will be accepted as the base for subsequent calculations. In this case, the amount of depreciation for the month will be determined by dividing the base price by the number of months that remained until the end of the useful life of the facility.

This procedure allows you to accelerate depreciation or reduce the balance. If applied, depreciation is reduced over the useful life of the assets.

For the payment of taxes, this method is particularly useful. For current activities, a large amount of capital funds and deferred taxes will be available if the assets are written off.

The method of reducing deductions has the following benefits: depreciable value and the effectiveness of assets is reduced, and low depreciation deductions will compensate for the high costs of maintenance and repair of obsolete equipment. To do this, it is necessary to accelerate depreciation, but in the first time deductions are better to increase in order to compensate for uncertainty in the matter of aging equipment.

Coefficient of depreciation of fixed capital

The coefficient of accelerated depreciation is an indicator that is equal to the ratio of the amount of depreciation received to the initial price of fixed capital. To calculate it, you need to use the balance sheet data. The depreciation coefficient shows the degree of depreciation of fixed assets, that is, a measure of financing their future replacement as they wear out.

These indicators are often used to indicate the state of fixed capital. It is also worth noting that the coefficient of this type does not reflect the actual deterioration of the equipment and does not allow for an accurate assessment of its current state. That is, these indicators are rather conditional.

Despite their conventionality, they have a certain analytical value. In general, it is considered undesirable if the wear coefficient does not exceed 50%, and the efficiency factor is not less than 50%. Objective evaluation of the indicator is achieved when it is compared with the value of the enterprise's competitors or its average value in this industry. The coefficient of accelerated depreciation is equal to dividing the depreciation index by the initial value of fixed capital.

Accelerated depreciation for leasing

Using the accelerated method of calculating depreciation in respect of the subject of financial leasing, you can achieve profit. However, potential clients of companies providing leasing services doubt the advantages of this method and the mechanism of its operation.

When used in relation to the object of leasing, accelerated depreciation allows you to reduce the profit tax throughout the term of the leasing contract. In addition, it is possible to reduce the amount of property tax on the object of the contract. In this case, the policy of accelerated depreciation allows you to buy the subject of the leasing contract at the end of its lease at the lowest residual value. Certainly, these are favorable conditions.

How is the coefficient of accelerated depreciation for leasing calculated?

The legislation established that when calculating the depreciation of property that is the object of leasing, the taxpayer has the right to use special coefficients. If a citizen intends to apply this right, he needs to fix this condition in his accounting policy for the tax accounting of the enterprise.

Based on legislative provisions, taxpayers can apply the accelerated depreciation rate for leasing if it does not exceed 3. It can be applied to depreciable fixed assets that are subject to a leasing agreement.

Redemption of the leased asset

During leases through leasing it is beneficial not only to accelerate depreciation, but also to buy back the object at the minimum residual value. Contracts of this type allow you to purchase the item after the specified rental period has expired. In this case, you can apply the method of accelerated depreciation. Equipment in this case refers to the fifth amortization group, it can be written off after 28 months of operation. This can be done if you accelerate the depreciation and the item will have a minimum residual value. Then it can be profitable to redeem it.