What Is Depreciation Of Fixed Assets

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What Is Depreciation Of Fixed Assets
What Is Depreciation Of Fixed Assets

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Video: Accounting - Fixed Assets and Depreciation - Part 1 of 2 - Severson 2022, November

The asset must be cost-effective and cost-effective. If the operation of the fixed asset does not bring profit, then the organization does not make sense to spend its financial resources on its maintenance. Depreciation shows whether the fixed asset is suitable for further use, and the amount of depreciation shows the degree of its recoupment and financial return.

What is depreciation of fixed assets
What is depreciation of fixed assets

Fixed assets or funds are means of labor that are used by the organization for more than 12 months or one production cycle and are not intended for further resale.

Physical and moral deterioration

Depreciation of fixed assets is of two types: physical and moral. Physical deterioration implies the need for urgent or major repairs of the fixed asset or its individual parts or parts.

Obsolescence shows the degree of obsolescence of a fixed asset with the appearance on the market of technically more advanced and modernized means of labor. Obsolescence of fixed assets depends on the technological and informational progress of society. Machines, equipment, production machines are more prone to physical wear and tear, computers and laptops are more subject to moral wear and tear.

Depreciation of fixed assets

Depreciation of fixed assets is a gradual transfer of the cost of fixed assets to the cost of finished goods, work performed or services rendered in the form of monthly depreciation deductions. Depreciation is the value in terms of the degree of depreciation.

The monthly accrual of depreciation and the inclusion of its amounts in the cost of products, works and services is a process of recoupment of fixed assets. In each ruble of revenue and profit, the company provides several kopecks of depreciation. This is the financial return of fixed assets, that is, when the fixed asset is able to bring economic benefits to its owner. The depreciation amount is also reflected in the sale price of finished goods, work performed or services rendered, which is ultimately paid by the end consumer.

Depreciation of property, plant and equipment can be calculated using linear and non-linear methods. In accounting, you can use any depreciation methods at the choice of the organization, in tax - only linear. The methods of depreciation used in the enterprise are established by the accounting policy for the purposes of accounting and tax accounting.

Depreciation rate shows how often the company renews its fixed assets. Depreciation should be less than 50% of the total value of fixed assets. If the wear is more than 70%, then the organization needs to update or modernize its production facilities, otherwise a high degree of wear can negatively affect the production cycle and product quality, cause interruptions and downtime in the production process. And this, in turn, will affect the amount of proceeds and profits from sales of the enterprise.

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