Fixed assets depreciation requires an accurate and precise means of tracking. If you’ve got fixed assets (and nearly every company or organization does), depreciation must be reported for accounting and compliance purposes. Those values determine your tax liability and your reported net income.
Depreciation is defined as the systematic reduction of the recorded cost of a fixed asset. Fixed assets can include IT equipment, furniture, buildings, etc. Three factors to consider when you calculate depreciation are:
Useful life: This is the time period over which you expect that the fixed asset will be productive, or useful. If it’s not cost-effective for you to continue using that asset, you’ve officially moved beyond its useful life and would then dispose of it.
Salvage value: You take this factor into consideration when disposing of an asset that has moved beyond its useful life. From time to time, you might be able to sell the asset for a reduced figure, which is called the salvage value. Your depreciation is calculated from the asset cost minus the salvage value.
Depreciation method: You have some options here. Either calculate depreciation expense using an accelerated method, or calculate it over the lifespan of the asset. An accelerated method allows you to take more depreciation early in the lifespan of the asset, which delays some of your tax liability. Calculating depreciation over the entire lifespan allows for simpler calculation. The most common way to show steady depreciation is via the straight-line method.
To do these calculations yourself, you’ve got to know a thing or two about tax laws and accounting. Most of us don’t have that expertise. It’s a rather complicated exercise, and if you’re managing multiple fixed assets across your organization, well, it’s enough to make your head hurt.
Asset Panda takes this task off your hands. And fixed assets depreciation is only the beginning.
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