All fixed assets serve a long period, but still during operation, even after overhaul, they need modernization and replacement with other assets. That is, there is a depreciation of fixed assets for various reasons.
Depreciation of fixed assets represents a loss of value and consumer qualities in a procession of constant work or prolonged inaction. This process can be both natural, regular, and depend on storage conditions, operating rules of fixed assets and the rate of technological progress.
The following types of depreciation of fixed assets are distinguished :
· Physical
· Moral (partial and complete)
· Social
· Ecological
So physical deterioration of fixed assets occurs when the cost of fixed assets is lost due to damage to technical properties, for example, animal disease, pipeline corrosion, destruction of a bridge or building during long-term operation and adverse environmental factors (precipitation, improper care of animals).
Physical deterioration is determined depending on the technical condition and service life. The degree of depreciation of fixed assets depends on:
· Load during operation
· On the quality of equipment
· The qualifications of employees servicing funds
· From the repair of equipment
· From how protected the fixed asset itself
The moral depreciation of fixed assets emit two types. When the cost of fixed assets is lost due to the fact that there are cheaper similar fixed assets to replace them, in which labor productivity increases sharply. Therefore, the use of obsolete fixed assets will slow down production itself and cause its own lag in the market. An example is the replacement of natural stones in instruments with artificial ones with the same performance. These tools are cheaper to manufacture, and old tools become economically obsolete and ineffective, which means they simply depreciate.
The second type of obsolescence is associated with the appearance of more productive similar products on the market. For example, the constant improvement of computers, laptops, the replacement of a pager with a cell phone. New computers have more productive technical parameters and are more economical.
With obsolescence, the main asset, without waiting for the specified service life, quickly loses its value and significance due to the fact that it lags behind in terms of technical characteristics and economic efficiency of the new equipment that has just appeared.
With social deterioration, the equipment loses value due to the fact that more modern, comfortable and safe models appear.
Environmental depreciation occurs as a result of stricter environmental standards. This is especially pronounced in aviation, when it is necessary to constantly overhaul and change aircraft.
When revaluing fixed assets, use the data of initial and residual value to calculate the degree of depreciation of equipment at the enterprise. The degree of depreciation of fixed assets is determined by the ratio of accumulated depreciation to a specific date to the total value of fixed assets on the balance sheet at the same date, expressed as a percentage. The closer this indicator is to zero, the less is the degree of wear.
The degree of wear shows how financially the equipment was prepared for replacement, that is, depreciated over the period of operation. The depreciation fund at the enterprise serves to replace worn-out equipment with new, and in the face of technological progress, and to expand the range of fixed assets.