The guide to the selection of the depreciation of fixed assets provides an important reference for enterprises in their choice of methods of depreciation of fixed assets, the diversity of methods of depreciation of fixed assets, the common straight-line approach, the workload method, the double-balance reduction method and the sum of years, etc., and the enterprise should take into account a combination of factors to select appropriate methods of depreciation, taking into account the nature and manner of use of fixed assets, which may be more appropriate for the use of more balanced fixed assets; where the intensity of use is closely linked to the volume of production, the workload method can more accurately reflect the depletion of assets, which needs to be combined with the financial objectives and operating strategies of the enterprise, and different methods of depreciation can have different impacts on the cost of the period, thus affecting profits and tax liabilities, and comply with relevant accounting standards and regulatory requirements. Overview of depreciation of fixed assets
Depreciation of fixed assets is calculated by the method by which the total amount of depreciation due is allocated over the life of the fixed assets. Depreciation is a portion of the value reduced by the progressive wear and tear of fixed assets as a result of their use, including physical wear and tear (material wear and tear, such as mechanical wear and tear in use and natural wear and tear resulting from natural force effects) and intangible wear and tear (value losses resulting from economic wear and tear, such as scientific progress, increased labour productivity, etc.), which are generally taken into account in calculating depreciation。
Ii. Advantages of common fixed asset depreciation (i) straight-line method (average age method): simple, easy to understand, simplified accounting and extensive application in practice. Disadvantages: (ii) advantages of the workload method: when physical wear and tear is more important than intangible wear and assets are not used frequently and the extent of use is related to the volume of production of products, it is reasonable to use the workload method, such as transport enterprises, professional fleets, passenger and cargo vehicles, certain large machine equipment of high value and not frequently used or seasonally used. Disadvantages: (iii) double-declining depreciation: advantages: iii. Considerations in the selection of depreciation methods (i) projected consumption of economic benefits associated with fixed assets
The enterprise should reasonably select depreciation based on the expected consumption of economic benefits associated with fixed assets. For example, if the use of fixed assets is more efficient in the early stages and gradually lower in the later stages, it may be appropriate to opt for accelerated depreciation; if more balanced, straight-line or workload methods may be more appropriate。
(ii) sectoral characteristics
Depletion of fixed assets varies from industry to industry. In the case of vehicles of transport enterprises whose losses are closely linked to mileage, a workload approach can be adopted; in the case of high-technology enterprises that are technologically up-to-date, accelerated depreciation can better reflect the reduction in the value of fixed assets, in line with the cost-benefit ratio。
(iii) financial position and business strategy of the enterprise (iv) legal and regulatory requirements and accounting standards
Enterprises must comply with national laws and regulations and accounting standards for depreciation of fixed assets and ensure that the selection and calculation of depreciation methods meet the relevant requirements. For example, once the depreciation method for fixed assets has been selected, it may not be changed at will, and changes are subject to specific accounting procedures。
Impact of depreciation of fixed assets on enterprise tax
Analysis of industry case for accelerated depreciation
Change process for depreciation of fixed assets
Depreciation of fixed assets and business profit projection
