What Is a Depreciation Deduction?

In the course of production and operation, an enterprise uses fixed assets to reduce its value and reduce its value, leaving only a certain residual value. The cost of fixed assets that is distributed over the useful life of its original value and residual value is depreciation of fixed assets. Determining the depreciation range of fixed assets is a prerequisite for depreciation. ^[1]

Basic Information

Chinese name

Accumulated depreciation

Foreign name

depreciation

Method

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Fixed assets and intangible assets are used to produce products and also have costs. Its value is his cost, which needs to be included in the cost of the product. Amortization is required. This is why fixed assets are needed

Depreciation is only a cost analysis. Depreciation is not a valuation of assets. It is neither

Depreciation of fixed assets

(1) Buildings;

(2) Machinery and equipment in use, instruments,

Introduction

There are many methods for companies to accrue depreciation of fixed assets, basically they can be divided into two categories, namely

Influencing factors

1. The original value of fixed assets, that is, the book costs of fixed assets.

2. The net residual value of a fixed asset refers to the amount after assuming that the estimated useful life of the fixed asset is full and in the expected state at the end of its useful life, after the enterprise has deducted the estimated disposal cost from the disposal of the asset. Since the residual value and cleaning costs of fixed assets are artificially estimated when calculating depreciation, the determination of the net residual value is subjective.

3 Fixed asset impairment provision refers to the accumulated amount of fixed asset impairment provision that has been accrued for fixed assets.

assets

4 The useful life of a fixed asset refers to the estimated period during which an enterprise uses the fixed asset, or the number of products or labor services that the fixed asset can produce. The length of the fixed asset's service life directly affects the depreciation amount that should be accrued in each period. In determining the useful life of fixed assets, the following factors should be considered:

(1) the estimated production capacity or physical output of the asset;

(2) The asset is expected to have tangible losses, such as wear and tear during the use of equipment, and natural erosion of buildings and structures;

(3) The asset is expected to have intangible losses, such as the relatively old technology level of existing assets due to the emergence of new technologies, and obsolete products due to changes in market demand;

(4) Restrictions on the use of the asset by law or similar regulations.

To this end, enterprises should reasonably determine the useful life and estimated net residual value of fixed assets according to the nature and use of fixed assets, and choose a reasonable method of depreciation of fixed assets based on technological development, environment and other factors. The depreciation shall not be accrued for the fixed assets leased out by the shareholders' general meeting or the board of directors, or the manager's (factory directors) meeting or the like, and the fixed assets leased out by operating leases.

Scope of depreciation of fixed assets

Except for the following cases, enterprises should depreciate all fixed assets:

(1) Fixed assets that have been fully depreciated and continue to be used;

(2) Land separately accounted for as fixed assets in accordance with regulations.

Enterprise fixed assets shall be depreciated on a monthly basis. The fixed assets added in the current month will not be depreciated in the current month, and depreciation will be accrued from next month; the reduced fixed assets in the current month will still be depreciated in the current month, and depreciation will be stopped from next month; for fixed assets that are scrapped in advance, no additional deduction depreciation.

If the fixed assets newly built or reconstructed by the enterprise have reached the usable state, if the final accounts for the completion have not been completed, they shall be temporarily accounted according to the estimated value and depreciation shall be provided. After completing the final accounts for the completion, the original temporary valuation shall be adjusted to The actual cost, while adjusting the original depreciation amount.

Depreciation of fixed assets

Depreciation of fixed assets

An enterprise shall choose the method of depreciation based on the expected realization of the economic benefits contained in fixed assets. Optional depreciation methods include the average age method (straight-line method), workload method, total years method, and double declining balance method. Once the depreciation method is selected, it must not be changed at will. If the company periodically reviews the depreciation method and finds that the fixed assets include economic benefits in the expected realization of a major change, it should change the depreciation method of the fixed assets accordingly, and report it to the relevant department Recorded and explained in the notes to the financial statements. In my opinion, the fixed assets of the hotel and catering industry are mainly depreciated using the average life method.

The average age method, also known as the straight line method, refers to the method of calculating depreciation on the average of the useful life of fixed assets. Total accrued depreciation of fixed assets using this method is evenly distributed to each accounting period of the estimated useful life.

Calculated as follows:

Annual depreciation amount = [Original value of fixed assets 1 (estimated residual value income-estimated cleaning costs)] ÷ estimated useful life

= Total depreciable accruals of fixed assets ÷ estimated useful life

Annual depreciation rate = annual depreciation amount ÷ original value of fixed assets × 100%

Annual depreciation rate = (1-estimated net residual value rate) ÷ estimated useful life × 100%

Monthly depreciation rate = annual depreciation rate ÷ 12

Monthly depreciation amount = original value of fixed assets × monthly depreciation rate

There are three types of fixed asset depreciation rates, namely individual depreciation rates, classified depreciation rates, and comprehensive depreciation rates.

In actual work, most companies calculate depreciation of fixed assets based on the classification depreciation rate. Only individual special assets (such as higher value and longer service life) use individual depreciation rates to provide depreciation.