Depreciation of fixed assets is the gradual inclusion of the value of non-current assets in the price of products manufactured with their help. The amount of depreciation is one of the components of the costs incurred by the enterprise in the process of economic activity. The total depreciation charge of fixed assets available at the enterprise is a fraction of the initial cost of these non-current assets. This value is the norm of wear. Depreciation of fixed assets is considered a criterion for reducing the cost expression of a long-term asset. The condition of structures, buildings and equipment used in the production process by the enterprise is gradually deteriorating. The essence of the depreciation method is to distribute the value of the fixed assets by which they were put into operation over the estimated period of use. When calculating retained earnings, depreciation is deducted from the amount of income received.
Depreciation of fixed assets is carried out in the manner prescribed by Article 259 of the Tax Code. The amount of accrued depreciation in determining the profit intended for taxation should be determined monthly. Depreciation charges are made individually for each object of non-current assets. The beginning of the determination of depreciation by fixed assets is the first day of the month after its commissioning. Upon disposal of a long-term asset or a full write-off of its value, depreciation ceases. The business entity acquires this right from the first day of the next month.
The Tax Code also defines methods for calculating depreciation of fixed assets. The choice of methods for determining wear is left to the enterprise. There are 2 ways to calculate depreciation - non-linear and linear.
The first method without fail relates to objects of long-term assets belonging to the eighth, ninth and tenth group - buildings, transmission devices and structures. The commissioning period for these fixed assets does not matter. Other objects of long-term assets can transfer their initial value by any of two methods. The depreciation method selected by the enterprise for a separate fixed asset does not change throughout the entire period of its being in the depreciable property. Redistribution of the value of the object of long-term investments in the price of products is made in accordance with the period of its useful application.
Depreciation of fixed assets, calculated using the linear method, is defined as the product of the initial price of each object and the depreciation rate. If a non-current asset has been revalued, then in the formula you need to pay attention to the first factor. Its quality will be the replacement cost.
If depreciation of fixed assets was calculated using the non-linear method, then two factors were included in the formula for its calculation. In this case, they were the residual value and the depreciation rate of this particular object of non-current assets.
When using a fixed asset in conditions when the environment is capable of aggressively affecting it, the enterprise has the right to apply a raising factor. It increases the value of the depreciation rate, but not more than twice. The same right arises with increased shift in the use of non-current assets.
According to the decision of the head of the enterprise, enshrined in the order on accounting policies, the taxpayer has the right to reduce the depreciation rate of fixed assets. Such a decision must be enforced throughout the tax period.