What is the depreciation of assets?

Asset is a tangible item that has a cash value such as a building, car, computer or library. Most assets wear out and reduce the value or depreciation over time. If the company buys an asset that has a life expectancy for more than one year, it cannot write full costs for the cost of the year when it is purchased. Instead, the costs are affected during the expected service life of the item and this amount is subtracted as an asset depreciation.

In the accounting, the asset is depreciated differently for the profit and loss schedule than for income tax. The depreciation of assets for business purposes is based on the actual time expected by the company to use the item, while depreciation for tax purposes use a specified life -based length based on the property class and determined by the government's tax authority. For example, a company can buy a car that is intended to use only three years, so the depreciation of assets will be distributed for three years for profit statements. However, the Tax Code may require thatThe vehicle has been depreciated for five years, so another calculation is used to prepare tax forms.

Asset depreciation can be calculated using a line method or some forms of approved accelerated methods. The straight line is relatively simple to calculate; The cost of the item is divided by the number of years that are expected to last and the same amount of depreciation or deduction is carried out each year. Using this method, an item that costs $ 5,000 (USD) will be expected to have an expected service life of five years, deducted or depreciated at $ 1000 per year. If the item is purchased or placed in operation at any time other than the first year, modifications must be made to the first and last years of assets of assets.

accelerated forms of depreciation are based on file samples or graphs, and often change legislative authorities. In times of economic prosperity, the amount allowed acceleration may be reduced and the length of aliveOTA of an asset class can be extended. During an economic decline, governments may increase the amount of initial depreciation and shorten the expectations of the life of the class to encourage businesses to increase expenditure on property assets.

In the US, the entire asset cost can be deducted, while the United Kingdom and Canada assign the value of rescue an item that cannot be deducted. If the car costs $ 10,000 and has a rescue value of $ 1,500, asset depreciation will be limited to $ 8,500. Canada and the USA allow depreciation as a deduction of income tax. In the UK, depreciation is calculated only for the purpose of determining the net assets of the company. The depreciation is added back to the net profit for tax purposes and the percentage of the costs called the capital allowance is deducted when returning.

Calculation for depreciation of real estate assets is different and is not based on the costs of the entire assets. The universal assumption is that the land on which the buildings stand will last forever and therefore no depreciation is allowed. However, the structures are budoFor wear over time and must be reconstructed or replaced. In order to detect assets of assets on real estate, most countries require the soil value to be deducted from the total purchase price for calculating parts assigned to structures that can be depreciated.