The rate of depreciation and methods of calculating it

In the process of production use and operation, the fixed assets of the enterprise or company naturally wear out. In the course of this wear, they lose their technical properties. This wear is considered in two forms.

Moral wear is understood as the loss of technological properties and consumer value as a result of the development of scientific and technological revolution and obsolescence of products.

Physical wear is the loss of technological qualities as a result of the operational production activities of the enterprise or company.

In accounting, it is necessary to account for depreciation charges arising only as a result of physical depreciation.

Its rates are influenced by such factors as operating conditions of facilities, intensity of use, quality of equipment, level of protection from harmful influences, qualification of personnel.

The mechanism for transferring costs and accumulating monetary resources to replace worn out items of equipment is called depreciation, and deductions - depreciation. They are not credited to residential houses, landscaping facilities, productive livestock, used independently of the form of ownership land plots, garden and garden planting, environmental management facilities, fixed assets of non-profit enterprises, library funds and other facilities.

Depreciation is calculated taking into account the initial cost of the objects, the time of use and the accrual basis.

Methods of charging in accounting are the following: linear, the method of decreasing balance and proportional write-off, the methodology for calculating the sum of the numbers of years of operation.

For all methods, the key parameter of the calculation is the rate of depreciation, which is the percentage of the total cost of the fixed capital of the enterprise or the company, included in the cost of the total produced and sold by the enterprise products. The accepted designation of this parameter is DR from the English words depreciation rate. In economic sources, also categories-synonyms-the depreciation rate, the rate of depreciation, are used, the concept-the rate of write-off is more rarely used.

When using the linear method, such indicators as the initial cost, the rate of deductions, the current estimated value are taken into account. For example, if an enterprise acquired a resource of 200 thousand rubles. And with a service life of 5 years, the annual depreciation rate will be 20% (100% / 5 = 20%).

When applying the calculation by the method of reduced balance, this indicator is determined in accordance with the accounting for the residual value less depreciation charges. Based on the useful life. You can give an example: when purchasing an object for 200 thousand rubles. With a 5-year period of use, the depreciation rate for the third year will be 4% of the difference between the residual value and the depreciation value for the 2nd year.

When using the write-off method for the amount of years of use, the amount of deductions takes into account the original cost and is calculated, as shown in the example. Suppose an enterprise acquired an object of 200 thousand rubles. With a useful life of 5 years. We calculate the sum of the numbers reflecting the operating time: 1 + 2 + ... = 15 years. Hence, in the first year the rate of depreciation will be 33.3% (5/15). In the next year - 26.7% (4/15), in the third - 20% (3/15).

When applying the method of proportional write-off, the annual amount of deductions is determined by the ratio of the volume of output and the initial cost.

With all calculation methods used in accounting, the depreciation rate as an indicator is an important parameter and a tool for planning the development strategy of a company or an enterprise.