Depreciation methods for fixed assets

Profit supports the following depreciation methods:

• Straight line depreciation percentage

  Each year, you depreciate a fixed percentage of the difference between the purchase costs and the residual value.

  Formula: Depreciation per year = (purchase value + additional costs - residual value) / presumed period of use

  Example: 

  You purchase a machine with the following features: Purchase price of € 14,000, term of 5 years and a residual value of € 2,000.

  Depreciable: 14,000.- - 2,000.- = 12,000.-

  Depreciation per year: 12,000.- / 5 = 2,400.-

  Depreciation per month: 2,400.- / 12 = 200.--

  If you have only used an asset for part of the year then you may only depreciate over that part. Suppose you bought the machine on 1 October of this financial year. For this financial year you may then depreciate: 3 * 200 = 600

• Straight line depreciation amount

  You record a fixed annual amount for the depreciations. In the last financial year, you write off any differences with regard to the total depreciable amount.

• Direct depreciation

  You depreciate the asset completely in the first year. The asset is actually registered in fixed assets, possibly with a specified residual value. Journalising of the complete depreciation is done in the first year.

• Random depreciation

  You can decide the annual depreciation yourself (only permitted for fiscal depreciation). As a consequence, you can influence the company result. Normally, this is only used for a company just starting up.

• Degressive method (Belgium)

  With this method, you depreciate at twice the linear percentage in the first years. Starting from the year that the depreciable amount is lower than the normal linear amount, you continue to depreciate linearly. For this method, Profit takes into account that the annuity with degressive depreciation does not amount to more than 40% of the purchase value. In Belgium the depreciation amount may be a maximum of 40% of the purchase value.

• Percentage of the book value asset sale

  Each year you depreciate a fixed percentage of the book value asset sale. You depreciate until the residual value or the bottom value of the asset has been reached. If you create for the asset and you choose this depreciation method then you must enter the Depreciation period and Depreciation percentage. Profit automatically calculates the residual value after the depreciation period and the percentage have been entered.

  Formula:

  

  Where n is the number of years within which you want to depreciate

  Example:  

  You purchase a machine with the following features: Purchase price of € 10,000, depreciation period of 5 years and a residual value of € 1,000.

  The depreciation percentage is 25% per year (12 periods)

  Depreciation first year: 10,000 euros * 0.25 = 2.500 euros

  Depreciation second year: (10,000 euros - 2,500 euros) * 0.25 = 1,875 euros, and so on until the 5th year.

  In the 5th year, the remainder (- residual value) is also depreciated, divided over the 12 months.

  If you use the Percentage of the book value asset sale depreciation method, you can clear the depreciation period and then enter the depreciation percentage and the residual value. This calculates the number of years for the depreciation period and again adjusts the residual value, because Profit uses entire years for depreciation period calculations.

  If the asset is retained after this depreciation period, you can enter a lower residual value and enter a new depreciation regimen for the same asset.