Depreciation after modernization: accounting aspect

When is the method of writing off cost in proportion to the volume of products (works, services) applied?

the method of writing off the cost in proportion to the volume of production (SPO) at its discretion from the permitted methods of calculating depreciation. But such a possibility exists only in accounting - the Tax Code of the Russian Federation does not provide for such a method of writing off the value of property.

IMPORTANT! In accounting, there are 4 methods of calculating depreciation, listed in clause 18 of PBU “Accounting for fixed assets” (approved by order of the Ministry of Finance of Russia dated March 30, 2001 No. 26n): 1 linear and 3 non-linear. There are only 2 methods in the Tax Code of the Russian Federation - linear and nonlinear (Article 259).

SPO belongs to the group of “accounting” non-linear methods, however, it has significant differences with “tax” non-linear depreciation. They are related to the peculiarities of the methodology for calculating the amount of depreciation in the event of an STR:

• to calculate depreciation, it is necessary to have information about the expected volume of products (work, services) during the entire useful life of the property;
• depreciation for the billing period directly depends on the volume of products (works, services) produced using this type of property.

What transformations await the OS classifier in the near future, see the material “The fixed assets classifier may change .

With the “tax” non-linear method, the amount of depreciation is not calculated for a separate type of depreciable property, but depends on the total balance of the depreciation group and established by Art. 259.2 of the Tax Code of the Russian Federation, depreciation standards.

When choosing a depreciation method, priority may be given to SPO in the case when:

• machines, equipment and other property are used intensively for the production of certain types of products (performance of work, provision of services);
• it is possible to definitely establish a connection between the depreciation of property and the volume of products produced (work or service performed).

In any case, the approach to choosing a depreciation method should be carried out in a balanced and justified manner, with the benefits of such a write-off of property value compared with the level of calculation and accounting costs that arise. We'll talk about this in the next section.

The material “Which method to choose for calculating depreciation in tax accounting?” will help you decide on the “tax” depreciation method.

Example 1

A vehicle with a carrying capacity of more than 2 tons with an estimated mileage of 400 thousand km was purchased.
Cost 1.5 million rubles. In the reporting year, the mileage is 5 thousand km. Determine the annual amount of depreciation charges using the write-off method in proportion to the volume of production. Thus, this year the cost of production should include 18,750 rubles. For accounting purposes, depreciation must be calculated on a monthly basis.

How to evaluate the correctness of the chosen depreciation method?

To assess the correctness of the choice of depreciation method, it is necessary to calculate the amount of monthly depreciation for different methods of its calculation and compare the information obtained with the “depreciation policy” of management - its intentions regarding the write-off of property value (the need for its accelerated write-off, the need to evenly transfer the value of property to the cost of production and etc.).

SPO is not a commonly used method of calculating depreciation and is not suitable for all companies. It can be completely replaced by the simplest method to use - linear, in which:

• there is no need to regularly recalculate the amount of depreciation (it is constant from period to period, unless the property is subject to modernization, reconstruction or additional equipment that affects the increase in its value and useful life);
• there is a possibility of convergence between accounting and financial accounting in terms of depreciation charges;
• the change in residual value and accumulated depreciation occurs evenly.

The use of the linear method instead of SPO is justified if the company is expected to receive the same benefit (income) from this type of property throughout its entire service life, and its usefulness decreases gradually (as it wears out).

If we compare SPO with another accounting “depreciation” method - based on the sum of the numbers of years of useful use, then we must proceed from the following features of this method:

• the amount of depreciation is maximum in the first year of operation of the operating system and decreases gradually towards the end of its useful life;
• Depreciation is calculated over the entire useful life.

To compare this method with SPO, it is necessary to compare the calculated depreciation amounts for each period and choose the method in which you can write off the value of property faster - if such a task is provided for in the company’s development strategy.

Similarly, based on calculation, analysis and comparison, the most acceptable and rational method of calculating depreciation is selected between SPO and the reducing balance method - another “accounting” non-linear method.

Study the methods of calculating depreciation using the materials on our website:

• “Formula and example of the reducing balance method of depreciation”;
• “How to correctly apply the cumulative depreciation method?”.

Basic methods of calculating depreciation of fixed assets

Depreciation of fixed assets is the process of transferring their value as they wear out physically or obsoletely to the cost of the products produced by the organization.

Depreciation is the deduction of part of the cost of fixed assets to compensate for their wear and tear.

Depreciation of fixed assets is included in costs, and deductions are determined on the basis of established standards and the book value of fixed assets on which depreciation is charged. Depreciation charges are set as a percentage of the book value of fixed assets.

Depreciation is a cost indicator of the loss of physical properties of fixed assets or the loss of technical and economic properties, and as a result of this, value.

Therefore, the enterprise should ensure the accumulation of sources necessary for the acquisition and restoration of permanently worn-out fixed assets. This accumulation is achieved by including depreciation amounts in production costs.

The calculation of depreciation of fixed assets serves as the basis for recording the amounts of depreciation charges, that is, depreciation of fixed assets, on the credit of account 02 “Depreciation of fixed assets” in correspondence with the production cost accounts. Thus, the turnover under the credit of account 02 “Depreciation of fixed assets” reflects not only the amount of depreciation of all fixed assets of the enterprise, but also the amount of their reimbursed value through depreciation charges, i.e. the amount of accrued depreciation for the reporting period. Turnover in the debit of account 02 “Depreciation of fixed assets” is the amount of depreciation on disposed objects, regardless of the reason for disposal. Depreciation accrual ceases as the enterprise accrues (reimburses) the full original cost of fixed assets.

For accounting and tax accounting purposes, there are methods for calculating depreciation of fixed assets, shown in Table 1.

Table 1
Methods of calculating depreciation for accounting and tax purposes

With the straight-line method, depreciation is charged evenly over the entire life of the fixed asset. In this case, the cost of an item of fixed assets is understood as the initial cost or replacement cost if revaluation was carried out. The current residual value with this method of calculating depreciation is determined by the difference between the original cost and the total accumulated depreciation of the fixed asset.

The depreciation rate is determined as follows:

K = (1/n) * 100%,

where K is the depreciation rate (%);

n – useful life of the object (months).

The amount of accrued depreciation is determined as follows:

A = C * K,

where A is the amount of depreciation charges per month;

C – initial cost of the depreciation object;

K – depreciation rate (%).

With the reducing balance method, the amount of depreciation accrued for each period is determined by the product of the residual value and the depreciation rate calculated based on the useful life of the object, taking into account a certain coefficient established by the organization. Each period, depreciation is charged on the residual value at the beginning of that period.

The amount of accrued depreciation is determined as follows:

A = Composition * K * Ku / 100, where

Composition – the residual value of the fixed asset at the beginning of the period (year, month);

K is the depreciation rate of the object, calculated by the formula: 1 / useful life * 100%;

Ku is the acceleration coefficient established by the organization.

With this method, the amount of depreciation will constantly decrease, but will not reach 0, therefore, when the residual value reaches 20% of the original cost, the balance is fixed, and the monthly amount of depreciation is calculated in proportion to the number of remaining months of operation.

When writing off the cost by the sum of the number of years of useful life for each period, the amount of depreciation is determined by the product of the original cost of the fixed asset and the ratio of the remaining number of years of operation to the sum of the number of years of useful use of this fixed asset.

The amount of accrued depreciation is determined as follows:

A = C * M / N, where

C – initial cost of the depreciation object;

M – the remaining number of years of operation of the fixed asset;

N – the sum of the numbers of years of the useful life of the object.

With the method of writing off the cost in proportion to the volume of production for each period, the amount of depreciation is determined on the basis of some natural indicator (tons of products, vehicle mileage, etc.).

The amount of accrued depreciation is determined as follows:

A = C / B, where

A – the amount of depreciation per unit of output;

C is the initial cost of the fixed asset;

B is the expected volume of the natural indicator.

For tax accounting purposes, the linear method of calculating depreciation is used by analogy with accounting. With the non-linear method, the amount of depreciation is determined as follows:

A = (K / 100) * B, where

A – the amount of depreciation accrued for the period for the corresponding depreciation group;

B – total balance of the corresponding depreciation group;

K – depreciation rate for the corresponding depreciation group.

Depreciation rates for depreciation groups are given in the table.
Depreciation rates for depreciation groups when using the non-linear depreciation method

From the month following the month in which the residual value reaches 20% of the original or replacement cost of the object, depreciation is accrued in the following order:

1. The residual value of the object is fixed as the base cost for further calculations;
2. The amount of depreciation charged per month is determined by dividing the base cost by the number of months remaining until the end of its useful life.

Method of writing off cost in proportion to production volume: calculation example

Let's look at an example of how to calculate depreciation using the SPO method.

Example

The company produces metal components for production equipment according to customer requests. For these purposes, in February 2021, a lathe with electronic numerical control was purchased and put into operation at an initial cost of RUB 3,000,000.

Taking into account the technical resource and productivity of this machine, it is planned to produce 300,000 units of products over its entire useful life.

In March and April 2021, 2,500 and 3,200 units were produced on this machine. products, respectively, and in May the machine was idle due to the lack of requests from the customer for this type of product. Let us determine the amount of depreciation in the indicated months:

In March: RUB 3,000,000. / 300,000 units × 2,500 units = 25,000 rub.

In April: RUB 3,000,000. / 300,000 units × 3,200 units = 32,000 rub.

In May: RUB 3,000,000. / 300,000 units × 0 units = 0 rub.

The example shows that with the SPO method, the write-off of the value of property can be accelerated (if the property is used in an intensive, multi-shift mode) or may not be carried out at all (if there are no orders, demand for this type of product has fallen, etc.). In a situation of persistent instability of orders, it becomes unprofitable to use open source software.

Features of calculating depreciation using the linear method. Advantages and disadvantages

Business lawyer > Accounting > Features of calculating depreciation using the straight-line method. Pros and cons of the method

Depreciation: linear method

The activities of each enterprise involve the so-called fixed assets. They mean items and objects that are necessary for the production process.

An important feature of each fixed asset is that its service life must exceed one year.

Another sign of what we call a fixed asset is its annual wear and tear and the subsequent decrease in value.

Year after year, cost turns into another category - cost.

The process is done through another concept and accounting process called depreciation.

What applies to fixed assets

Everything that does not go out of service within a year and is used for any production processes is classified as fixed assets.

The list may include:

• building;
• machines;
• vehicles;
• electronics (computers, faxes, copiers, etc.);
• furniture;
• inventory, etc.

Upon acquisition, fixed assets are accepted by the accounting department on the balance sheet at their nominal value. Over time, they wear out both materially and morally. This fact is reflected annually in the accounting documentation. The cost is decreasing.

Accountants define it with the term “residual”. And the funds themselves are called pure fixed assets. This entire “cleaning” process is carried out through depreciation.

Depreciation charges are applied at all enterprises. The accounting department's task is to choose the correct accrual method so that it corresponds to the goals and benefits of the company.

Depreciation in accounting

Types of depreciation in accounting

The purpose of depreciation in accounting is to transfer the cost of fixed assets to the cost of what the company produces. These can be goods or services.

The transfer process is carried out gradually, in equal or unequal shares for each year the item becomes obsolete.

The calculation is carried out over the useful life of the building, equipment, inventory, etc. There are special requirements for making depreciation deductions.

An accountant can only use those methods that are currently permitted in the Russian Federation. Today, four types of accrual are used.

This:

1. linear method;
2. a method when the cost is written off according to the sum of the numbers of years of the useful life period;
3. proportional method, when the write-off process is tied to one of the production indicators. For example, it could be a machine hour;
4. reduction of balance.

One of the most applicable in Russian accounting practice is the linear type. It has a number of advantages that make it the most profitable and simple.

Advantages of the linear method

Each type of accrual is provided for specific conditions. Accrual of depreciation using the straight-line method is most appropriate when fixed assets are of a type for which the operating period is established regardless of its obsolescence, but according to time.

An important advantage of the linear type is its simplicity. Due to the ease and speed of calculations, it is used in most enterprises.

According to statistics, more than 70% of companies use the linear accrual method.

For some types of fixed assets, the linear method is mandatory. These are the company’s vehicles, its housing stock, buildings, etc.

For other types of fixed assets, you can select the type of depreciation charge. In most cases, linear is chosen because of its simplicity.

It must be remembered that the chosen method cannot be replaced by another over time.

Calculation of depreciation using the straight-line method

The method is called “linear”, since the cost of the fixed asset with its help decreases evenly. That is, it is divided into equal shares. What is the following formula used for:

A=(C×H)/100

“A” refers to deductions that will be made every year.

C is the cost of the item or object with which it was credited to the enterprise’s balance sheet.

H is the standard designation for the deduction rate.

For example, if a company purchased a machine that costs 50,000 rubles. With a service life of 10 years, 100,000/10 will be deducted. We receive 5,000 rubles per month.

As a result of depreciation charges at the end of the tenth year of service, the residual value of the machine will be 0 rubles. This does not mean that the machine will completely depreciate and can be thrown away. It can serve properly for many years to come, fulfilling its original functions.

But in the documents it means that the costs of purchasing equipment are fully reimbursed. At the same time, the machine has a real value at which it can be sold, exchanged, etc., if necessary.

Features of linear depreciation calculation

The nuances of linear depreciation

When choosing a linear method, you need to understand that for a particular object it will be the only one until the expiration of its service life.

If we talk about buildings, then there will not be any special problems.

However, when applying the method to tools, equipment, vehicles, etc. It should be borne in mind that over time they wear out and require more and more money for repairs.

The cost of servicing is growing, and write-offs are happening evenly.

This is the main and only drawback of the linear type of depreciation charges.

The linear method can be applied not only to new funds. It is also used for used equipment.

The main point is the correct calculation of the new application period.

https://www.youtube.com/watch?v=SuOtmbNGCgk

The linear method of depreciation is rightfully considered the most promising and convenient for accounting.

Select it and press Ctrl+Enter to let us know.

Source: https://PravoDeneg.net/buhuchet/osobennosti-nachisleniya-amortizatsii-linejnym-sposobom-plyusy-i-minusy-metoda.html

The impact of legislative changes on the choice of depreciation method

Legislators have simplified certain aspects of calculating and calculating depreciation of property for companies that have the right to conduct accounting and prepare reports in a simplified form (Order of the Ministry of Finance of the Russian Federation dated May 16, 2016 No. 64n, which entered into force on June 20, 2016).

IMPORTANT! Small enterprises and non-profit companies with annual revenue of no more than 3 million rubles have the right to use simplified methods of accounting (including simplified accounting). (with the exception of certain categories of non-profit organizations), as well as companies that are residents of Skolkovo (letter of the Ministry of Finance of Russia dated December 27, 2013 No. 07-01-06/57795).

From June 20, 2016, these companies have the right to:

• do not include in the initial cost of fixed assets the costs associated with their acquisition (valuing the property at the price of the supplier (including installation)) - they can be immediately included in the costs of ordinary activities in full during the period of their implementation;
• Depreciation of fixed assets is calculated once a year on December 31 (or during the year at the choice of the company).

For more information about the innovations of Law No. 64n, see the material “Calculation of depreciation once a year and other innovations for those who have access to simplified accounting .

These innovations make it possible to quickly write off the cost of property (including using the SPO method), since part of the costs is included in expenses immediately, without including them in the initial cost.

The legally mandated ability to charge depreciation once a year reduces accounting calculations, although more frequent calculations may be necessary for internal financial reporting and property tax purposes.

These innovations do not have a direct impact on the efficiency of using a particular depreciation method, although they help reduce depreciation amounts and the frequency of their calculation. And to select SPO as one of the possible methods of writing off the value of property, an assessment, preliminary calculations and justification are required.

How to avoid differences in accounting and tax accounting when writing off the value of property, see the material “A way to take into account fixed assets worth from 40 to 100 thousand rubles in tax accounting, avoiding differences with accounting .

When is the method used?

The method of writing off the cost of fixed assets in proportion to the actual physical indicator is applied only in the case when the manufacturer has established the expected volume of work or manufactured products for a specific fixed asset.

If there is no such parameter, then the method is not applied.

The depreciation write-off method is convenient to use when there is a direct connection between wear and tear and the frequency of use of the object.

This is typical for production equipment, the mining industry, and vehicles.

In practice, a situation is possible when the property is actively exploited, then the cost of the fixed assets may be written off in less time than the established useful life. It turns out that the asset is completely depreciated, but the useful service period has not ended. In this case, the object can be used for its intended purpose until the end of the joint venture without depreciation charges.

Advantages and disadvantages

The method of writing off proportionally to manufactured products, works, and services is fundamentally different from the other three methods of calculating depreciation. It is used primarily in the production sector and industry.

In practice, the proportional write-off method is not used so often. It is much more convenient to choose a uniform linear method with equal amounts of depreciation charges.

However, the organization has the right to establish this method for a homogeneous group of objects, for example, for vehicles.

The choice of depreciation calculation method is fixed in the accounting policy.

Write-off of the cost of operating systems using the production method

The method of writing off the cost of a fixed asset using the production method is non-linear, that is, the amount of depreciation may differ every month.

Depreciation charges depend on:

• on what planned volume of products, services, works the manufacturer has established for a specific OS object;
• on the size of manufactured products, works, services for the billing period (year, month).

In fact, such a parameter as the useful life does not take part in the calculation using the production method.

The depreciation rate is calculated based on the initial cost and the planned volume of production over the entire period of operation.

If an organization chooses to write off the cost in proportion to the products produced, services or work provided, then this fact must be stated in the accounting policy.

It is important that the chosen method will have to be applied to the entire group of homogeneous objects, and not just to a specific single fixed asset. Therefore, you should think through this point in advance.

Other methods for calculating depreciation:

• linear;
• reducing balance;
• by the sum of the numbers of SPI years.

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The procedure for calculating annual and monthly depreciation is prescribed in clause 19 of PBU 6/01.

In accordance with this paragraph, if to calculate the amount of monthly depreciation by other methods it is necessary to divide annual deductions by 12, then for the accrual method proportional to production and work, a different rule applies.

The natural indicator is taken into account - how many products were produced during the reporting period, how much work was performed or services were provided.

The peculiarity of the method is that usually the annual amount of depreciation is not calculated; the calculation period is considered to be a month. For each month, calculations are carried out separately, based on the natural indicator for a given period.

Formulas for calculation:

Norm A. = Initial cost / Planned volume of products or work for SPI.

Depreciation = Actual volume for the billing period * Norm A.

The estimated quantity of products and work that will be performed over the entire useful life is determined by the manufacturer in the technical documentation. If this parameter is not defined for a fixed asset, then the write-off method in proportion to production cannot be used.

Initial data:

The organization bought a production line for the production of polycarbonate sheets in April 2021, the initial cost is 12,500,000 (excluding VAT).

The production line has a service life of 5 years.

In accordance with the technical document for the line, the manufacturer established the planned production volume for the entire service life of 2,160,000 kg.

In the first month, 25,000 kg of polycarbonate were produced, in the second = 32,000 kg.

Calculation of depreciation in proportion to manufactured products:

• Norm A. = 12,500,000 / 2,160,000 = 5.79 rub./kg
• Depreciation for 1 month = 25,000 * 5.79 = 144,750 rubles.
• Depreciation for 2 months = 32,000 * 5.79 = 185,280 rubles.

Etc.

How is the cost of an operating system written off using the production method?

If an organization, in the course of its activities, uses fixed assets with a predetermined standard volume of work, then a proportional production write-off method can be established for them in the accounting policy.
In this case, the organization must perform the following actions:

1. At the beginning of operation, calculate the depreciation rate that will apply throughout the entire service life.
2. At the end of each month, the actual volume of work performed or products produced using this fixed asset is established.
3. Based on these data, monthly depreciation calculations are carried out.

In accordance with the production method, the cost of the object will be written off in the amount that falls on the actual volume of work completed for a certain billing period.

When applying the write-off method in proportion to the volume of work performed and products produced, the enterprise calculates the depreciation rate not as a percentage, but in rubles per unit of measurement.

The calculated rate shows what part of the cost falls on each unit of production or work performed.

For example, for vehicles, the norm will show what share of the cost in rubles is accounted for for each kilometer traveled. For a production machine - part of the cost per unit of production (piece, kilogram, kilometer or other unit of measurement).

This method is nonlinear, but it is not accelerated, unlike the reducing balance method or write-off by the sum of the number of years of SPI.

This method allows you to take into account the actual operating schedule of the fixed asset.

The stronger, longer, more intensively the fixed assets are used, the greater the depreciation charges will be.

If the object is not used for some time or the load on it decreases, then depreciation will decrease proportionally.

This write-off procedure makes it possible to take into account the actual mode of operation and reflects the actual wear and tear of the property, which is very convenient for production assets, vehicles and other fixed assets, for which productivity depends on their condition.

How to use the straight line method to calculate depreciation.

Formulas for calculating depreciation charges

To calculate depreciation using the write-off method in proportion to products and work, formulas are used in accordance with the procedure prescribed in clause 19 of PBU 6/01.

Formulas:

Standard = Initial cost / Standard amount of work for the entire service life

Depreciation for the billing period = Actual volume of work for the period * Norm.

Features of calculating depreciation charges using the specified method are as follows:

• The formulas do not include a useful life, so this indicator is necessary solely to establish the period during which depreciation will be calculated.
• To calculate monthly depreciation, you do not need to divide the annual depreciation by 12, as is done in the other three methods of calculating deductions.
• A month is usually chosen as the billing period - this is the optimal period for which it is convenient to measure the actual indicator of use (the number of units of products produced, work performed).
• The depreciation rate is measured not as a percentage, but as a cost in rubles per unit of work.
• The amount of depreciation charges depends only on the actual operating mode and may change every month.
• When the original cost changes, the replacement cost must be substituted into the formula.

Nonlinear method of accrual in tax accounting.

Example for released products

Initial data:

In May 2021, the company purchased a machine for the production of metal lids.

Initial cost 1,400,000.

The useful life of the machine is determined to be 5 years.

We assume the production volume for the entire service life according to the data sheet: 900 thousand caps

In the first month, 10 thousand caps were produced, in the second - 15 thousand caps.

Let's calculate depreciation for the first two months.

Calculation:

Norm = 1,400,000 / 900,000 = 1.56 rubles/piece.

A. for the first month = 10,000 * 1.56 = 15,600 rubles.

A. for the second month = 15,000 * 1.56 = 23,400 rubles.

Depreciation: examples of calculation using the reducing balance method

Expensive computer equipment belonging to the OS category was purchased, costing 230 thousand rubles. In this case, the useful life will be 8 years or 84 months. The company's internal documentation determined that depreciation would be calculated using the reducing balance method. The company's management assumes that the maximum income from the operation of this equipment will be received in the first years after purchase. As a result, Avangard decided to use an acceleration coefficient in the calculations, the value of which was determined to be 1.6%.

• Let's calculate the depreciation rate for 1 year:

NA = 100% / 8 years = 12.5%

• The annual depreciation rate taking into account the acceleration factor will be determined as follows:

NA = 12.5% ​​* 1.6% = 20%.

• The amount of depreciation charges for the first year after commissioning of the equipment is calculated:

A = 230 tr. * 20% = 46 tr, that is, it will depreciate monthly computer equipment in the amount of 3,833 tr. (46 TR / 12 months).

A feature of the practical use of this method is the ability to take into account the specific intensity of equipment use.

• The amount of depreciation charges for the second year after commissioning of the equipment is determined:

A = (230 tr. – 46 tr.) * 20% = 36.8 tr. per year or 3,067 tr. per month (36.8 tr. / 12 months).

• The amount of depreciation charges for the third year after commissioning of the equipment is calculated:

A = (230 tr. – 46 tr. – 36.8 tr.) * 20% = 29.44 tr. per year or 2,453 tr. monthly (29.44 tr. / 12 months).