# What is fixed asset depreciation?

### fixed asset depreciation

The depreciation of fixed assets is the process by which the value of the useful life of the assets is obtained through the passage of time and in this way obtain a value that allows the company to have the knowledge of the loss of economic value. of the asset.

Within companies it is important to consider the depreciation of fixed assets since this is a point that is considered valuable for accounting within the company since it allows the accounting part to be prepared and that it is found properly.

### What items are considered for depreciation of fixed assets?

In order to consider the depreciation of fixed assets, it is important to look at three important terms and they are the following:

• Initial cost: This is considered the total value of the payment that the company made at the time of acquiring the asset and which will be depreciated throughout the life of the asset.
• Rescue value: This is considered the value that the company can obtain when the asset is sold at the end of its useful life.
• useful life of the asset: This time is considered the one in which the asset worked or operated within the company.

Knowing the value of these elements will result in obtaining the depreciation of the assets.

## How can asset depreciation be performed?

In order to calculate depreciation, the following methods can be used:

Straight line method: This method considers that the asset has uniform wear, regardless of the amount of use it is given, so the result of this calculation will give us the annual depreciation expense.

Sum of annual digits method: It seeks to obtain a percentage through a common divisor that can be used in the years of useful life that the asset has had.

Production units method: In this case, the time that the machinery or equipment has worked is considered important, since it considers what it produces and the results obtained.

## How to differentiate depreciation and amortization of assets?

When talking about physical and tangible goods we talk about depreciation. However, with those that are classified as intangibles, it is about amortization, since this refers to a loss of value that an asset contracts over time.

Some assets that use amortization to subtract the value they lose with their use:

Speaking of this type of goods that are intangible, their useful life is already defined before the purchase, so the calculation method is different.

A common method for calculating this asset is linear depreciation, in which the value of the asset is reduced by the same amount each year in order to measure the annual wear and tear of an asset and to be able to calculate it there are two methodologies:

1. The one of the percentage; where the following formula must be used: Annual amortization = Acquisition value x coefficient (%)
2. And the useful life; where this is used: Annual amortization = Acquisition value / Years of useful life.

### What percentage of annual depreciation is valid for fixed assets?

An example of categories like; construction, communication, railways and airplanes such as:

## What is tax depreciation?

It is a method with which we can deduct the decrease of an asset as an expense from our taxes, thus allowing the recovery of its cost, an example are the expenses periodically made by the company, in order to obtain a tax advantage.

In our country, the maximum method authorized by law is the one agreed to calculate this type of depreciation, the maximum amount and % of annual deduction is established in a table provided by the SAT and is obtained with this small formula:

And to obtain the monthly tax depreciation, this is used:

## What is accumulated depreciation?

It is used to calculate the depreciation of assets over time, that is, the amount that has been charged to expenses since it was purchased.

## What happens after the useful life of a fixed asset?

Normally any asset/good begins to depreciate from the moment it is acquired, the main causes of depreciation can be: physical and functional; a physical cause refers to natural wear due to use and a functional one is presented by obsolescence or insufficiency, that is, when it can no longer fulfill the purpose for which it was acquired, the first of these two factors mentioned above that is present in the life of the asset will be the one that will be taken into account as a cause of depreciation.

Therefore, when this happens and the useful life of an asset ends, it must be replaced. What is done is to take money from the reserve fund for depreciation and invest a budget, which is called replacement cost.

And for this asset that has finished its useful life we must calculate the total depreciation cost or total base to depreciate, which is obtained from the difference between the original cost and the value of a waste or fixed asset, it is very important to take into account that despite the fact that it has already depreciated, it will always retain a value, even as scrap.

## Why is it important to rely on software?

The use of asset control software such as SAAF It can bring great benefits to the company, since it allows you to enter the necessary information and obtain the automatic depreciation of each of the assets.