Depreciation funds is a certain amount of funds accumulated by an enterprise aimed at renewing the value of
fixed capital. Funds are accumulated using depreciation charges, which in turn are part of the cost of production. Thus, depreciation funds
provide the most complete existence of the enterprise. They eliminate the process of depreciation of expensive equipment, vehicles, buildings and structures, representing a volume of funds focused on their restoration.
Depreciation of fixed assets
However, although this concept is still used in modern accounting, it is a rather abstract way of formation, not provided for in the legislative form of a special fund. Depreciation funds since 1992 do not exist in practice, representing only the derivative accumulations of deductions formed due to the cost of production. Changes in the legislation occurred in connection with the full-scale privatization of state property by private entrepreneurs.
After that, the legislative bodies of the country decided that they do not have the right to control the technology of entrepreneurial activity by which the
depreciation of the fixed assets will be restored. Although many modern economists today may not agree with the formulation of this domestic economic issue of enterprises and organizations by Russian legislators, since the constituent capital of business entities in the modern economic system, like the funds of Soviet enterprises, in most cases is not formed by the founders of the organization, but is attracted from the external investment environment . In this regard, managers of an economic entity are equally liable to investors, as well as the management of the plant to the Soviet government at the time. Depreciation funds, in turn, do not allow the manager’s imagination to go around in full, having mastered in this way excessive capital to the detriment of dividends, as deductions from cost allow. However, since this process is not stipulated in the legislative form, investors can only more thoroughly analyze the
investment attractiveness of the enterprise, hoping for the good faith of its management.
Depreciation fund of the enterprise
But it often happens that an enterprise is steadily pursuing a dividend policy positive for an investor. In such cases, management uses the classical method of calculating the depreciation fund. When it reflects the total value of fixed assets transferred to the manufactured product over their life. That is, on that
the amount that could fully reimburse
fixed assets when they are worn out. The volume of the depreciation fund from a mathematical point of view has the form:
AF = PV + KR + M + L, where:
- PV - the value of fixed assets;
- KR - the cost of depreciation repair during a given period;
- M - the cost of modernization;
- L - liquidation value.