How to accelerate depreciation? Accelerated depreciation method

2024 Author: Howard Calhoun | [email protected]. Last modified: 2024-01-09 14:06

The quality of management of the financial and economic activities of the company depends on the effectively organized management and the degree of information support of its services. To date, a small number of domestic enterprises are distinguished by the delivered accounting system and organized management, which ensures the suitability of information for analysis and operational management. However, it must be accurate and objective.

Accounting services information should have a small number of indicators that will satisfy the maximum number of users. Credentials must be formed to make the right decisions aimed at the effective management of the enterprise's business processes.

The management of each enterprise cares about the efficiency of the use of property for the rational development of business, since fixed assets are of rather high value. To update its active part, you can usespecial methods, such as the accelerated depreciation method.

What is depreciation?

Depreciation of fixed capital as a category of the economy is part of the costs that will be included in production costs. In addition, it is a cumulative financial source of income used to restore capital investments.

Fixed assets have been involved in various activities of the organization for a long time. However, they gradually wear out and share their own value between the costs of distribution and production. Depreciation will be charged on the company's fixed assets, whether they are active or not.

How is depreciation calculated?

Depreciation is allowed only in the ways provided for by law. To date, in Russia, this procedure is performed by one of the following options:

• decreasing balance method;
• in a linear fashion;
• write-off of the cost by the amount of the term of application, expressed in years;
• performing price write-offs in proportion to the amount of work;
• acceleration of depreciation.

The use of one of the available depreciation methods is carried out during the entire useful life.

What is accelerated depreciation?

Accelerated depreciation is the rapid transfer of the price of fixed assets to the cost of products produced with their help. ATmainly domestic literature, which is devoted to tax and accounting, excludes the presence of a clearly defined boundary in deciphering the concept of the accelerated depreciation mechanism and methods of its calculation.

The essence of the mechanism is that at the beginning of the application, the amounts will significantly exceed the depreciation charges that are usually charged at the end of the useful life of the fixed capital object.

When is accelerated depreciation used?

Accelerated depreciation applies in the following cases:

• for assets that are characterized by a decrease in the volume of products produced with a useful life;
• assets wear out quickly;
• repair costs are rising rapidly during operation.

This method applies to the active part of the fixed capital that was put in place to issue funds, aimed at acquiring the latest equipment and materials, as well as expanding the export of goods. This is carried out in cases where a mass replacement of old equipment with a new one with a higher level of productivity is necessary.

The accelerated depreciation method also applies to various vehicles and equipment if their standard life does not exceed three years. Aircraft-motor equipment is also subjected to this procedure, but at the same time, their service life is determined by the hours of operation. In addition, buildings and new businesses that haveincreased burden on fixed assets.

Purpose of applying accelerated depreciation

Accelerated depreciation allows you to write off the cost of a capital fund much faster than it is required by the established norms. The purpose of its use is to stimulate the inflow of investments. This is due to the fact that the investment of capital entails the receipt by the enterprise of the right to defer the payment of fees and taxes.

In the case of using accelerated depreciation, the tax liability will be reduced, since the company's profit will not include the amount of depreciation. After the value of the assets is fully depreciated, the profit of the organization will increase, and consequently, the amount of taxes will increase.

Calculation of accelerated depreciation

In the case of using the non-linear method, the amount of depreciation for one month will be determined as the product of the residual value of the object. It is calculated using the formula:

K=Koef: n x 100%, where

K is the depreciation rate to the original price of the item, which is expressed as a percentage;

Koef is the acceleration factor, which depends on legislative norms; n is the useful life of the object, expressed in months.

After the residual price of the equipment is equal to 20% of the initial amount, it will be taken as the base price for subsequent calculations. In this case, the amount of depreciation per month will be determined by dividing the base price by the number of months that remainuntil the end of the useful life of the object.

This procedure allows you to accelerate depreciation or reduce the balance. If applied, depreciation charges decrease over the useful life of the asset.

This method is especially useful for paying taxes. A large amount of capital funds and deferred taxes will be available for ongoing operations if the assets are written off.

The deductible method has the following benefits: the depreciable cost and efficiency of assets is reduced, and low depreciation charges will compensate for the high costs of maintaining and repairing obsolete equipment. To do this, you need to accelerate depreciation, but at first it is better to increase deductions in order to compensate for the uncertainty in the issue of equipment aging.

Depreciation rate of fixed capital

The accelerated depreciation rate is an indicator that is equal to the ratio of the amount of depreciation received to the original price of the fixed capital. For its calculation it is necessary to use the balance sheet data. The depreciation coefficient shows the degree of depreciation of fixed assets, that is, the measure of financing their future replacement as they wear out.

The indicators under consideration are often used to indicate the state of fixed capital. It should also be noted that this type of coefficient does not reflect the actual wear and tear of the equipment and does not allow an accurate assessment of its current condition. That is, these figures arerather conditional.

Despite their conventionality, they have a certain analytical meaning. In general, it is considered undesirable if the wear factor does not exceed 50%, and the service life factor is not less than 50%. An objective assessment of the indicator is achieved by comparing it with the value of the indicator of the company's competitors or its average value in this industry. The accelerated depreciation rate is equal to the depreciation rate divided by the original cost of the fixed capital.

Accelerated depreciation on leases

Using the accelerated depreciation method in relation to the subject of a finance lease, it is possible to achieve a profit. However, potential clients of companies providing leasing services doubt the advantages of this method and the mechanism of its action.

When used in relation to the leasing object, accelerated depreciation allows you to reduce income tax throughout the entire term of the leasing agreement. In addition, you can reduce the amount of property tax on the object of the contract. At the same time, the policy of accelerated depreciation allows you to buy out the object of the leasing agreement at the end of its lease at the lowest residual value. Of course, these are favorable conditions.

How is the accelerated depreciation rate calculated for leasing?

The legislation establishes that when calculating the depreciation of property that is the object of leasing, the taxpayer has the right to use special coefficients. If a citizen is goingto exercise this right, he needs to fix this condition in his accounting policy for maintaining the tax accounting of the enterprise.

Based on statutory provisions, taxpayers may apply an accelerated depreciation rate for leasing, as long as it does not exceed 3. It can be applied to depreciable fixed assets that are the subject of a lease.

Repurchase of the leased asset

During a lease through leasing, it is beneficial not only to accelerate depreciation, but also to buy an object at a minimum residual value. Contracts of this type allow you to purchase an item after the specified lease period expires. In this case, the accelerated depreciation method can be applied. The equipment in this case belongs to the fifth depreciation group, it can be written off after 28 months of operation. This can be done if depreciation is accelerated and the item will have a minimum residual value. Then it will be possible to buy it at a profit.