What is Asset Depreciation?

Assets are whatever the business has shown on the balance sheet; this can include property, machinery, computers, and more liquid assets such as cash/investment and current debtors.

Assets need to have value, and with many larger purchases such as factory machines or large computer systems, they have initial value when purchased, this will decrease in value over time. Instead of these large purchases included in a specific month in your PL, they are ‘written’ for their useful life.

For example if a company buys a new tractor for £ 150b, and its useful life is 10 years, they will have it as an asset on their balance sheet (ie positive for business) and depreciate with £ RB 15k every year until the end of 10 years must take a hefty fee in the year they bought it.

This widely used, and many businesses will have a policy that items above a particular value are written off during a specified period depending on the subject and its application, this usually indicated in the company account. You have to depreciate assets for their useful lives, there is not much use in depreciating cars for 75 years, because it is unlikely that it will benefit the business for more than 5/6 years before it is not economical to run and repair.

The same can said for computer equipment, which generally only has a useful life of 3 or 4 years depending on the application. If an item survives more than your projected ‘useful life,’ you can still use the item in your business; it just means the thing is ‘fully paid,’ and there is no further ‘value’ or ‘cost’ in it — your company.

If you sell items before their useful life ends, you must take into account, and it will be beneficial if you use the services of an accountant who can track each asset accurately and ensure depreciation and can find where the item used. In the company, if it has sold, damaged, or ends the end of its useful life.

There are many software packages to help track assets, and accounting packages have built-in features to do this.