1.3 ACCOUNTING FOR DEPRECIATION OF FIXED ASSETS:
Fixed asset depreciation is a very important content in fixed asset accounting in enterprises. Correctly determining the depreciation amount to be calculated and appropriately allocating it to the users of fixed assets ensures that there is enough capital to regenerate fixed assets, repay loans, etc., while ensuring correct accounting of costs and business results.
Depreciation of fixed assets is the part of the value of fixed assets that is calculated and transferred to production and business costs, so on the one hand it increases the depreciation value, on the other hand it increases production and business costs.
1.3.1 User account:
Fixed asset depreciation accounting uses account 214. The contents of this account are as follows:
Debit: Depreciation value of fixed assets decreases due to liquidation, sale of fixed assets, transfer to other units, joint venture capital contribution...
Credit: The value of depreciation of fixed assets increases due to depreciation of fixed assets. Credit balance: The accumulated depreciation value of fixed assets currently available at the unit.
Also uses other related accounts such as:
- Account 627: Depreciation of fixed assets used for production activities.
- Account 641: Depreciation of fixed assets used for sales activities.
- Account 642: Depreciation of fixed assets used for management activities.
1.3.2 Principles of depreciation calculation:
1. All existing fixed assets of the enterprise must be depreciated, except for the following fixed assets:
- Fixed assets have been fully depreciated but are still used in production and business activities.
- Fixed assets that have not been fully depreciated are lost.
- Other fixed assets managed by the enterprise but not owned by the enterprise (except for financial leased fixed assets).
- Fixed assets are not managed, monitored, or accounted for in the enterprise's accounting books.
- Fixed assets used in welfare activities serving the enterprise's employees (except for fixed assets serving employees working at the enterprise such as: mid-shift rest house, mid-shift canteen, changing room, toilet, clean water tank, garage, medical room or station for medical examination and treatment, employee shuttle bus, training and vocational training facilities, housing for employees invested in and built by the enterprise).
- Fixed assets are houses and residential land. In case of buying houses and residential land that have been granted long-term land use rights by the State, the value of land use rights does not have to be depreciated.
- Fixed assets from non-refundable aid after being handed over by competent authorities to enterprises to serve scientific research work.
- Intangible fixed assets are land use rights.
2. Fixed asset depreciation expenses specified in Point 2.2, Section IV, Part C of Circular No. 130/2008/TT-BTC dated December 26, 2008 of the Ministry of Finance guiding the implementation of a number of articles of the Law on Corporate Income Tax No. 14/2008/QH12 and guiding the implementation of Decree No. 124/2008/ND-CP dated December 11, 2008 of the Government detailing the implementation of a number of articles of the Law on Corporate Income Tax shall not be included in reasonable expenses when calculating corporate income tax.
3. In case fixed assets used in welfare activities serving employees of the enterprise as prescribed in Clause 1, Article 9 of this Circular are involved in production and business activities, the enterprise shall base on the time and nature of use of these fixed assets to calculate and deduct depreciation into the enterprise's business expenses and notify the tax authority directly managing them for monitoring and management.
4. Fixed assets that have not been fully depreciated are lost or damaged beyond repair, the enterprise shall determine the cause and the responsibility for compensation of the group or individual causing the loss. The enterprise shall use the Financial Reserve Fund to compensate for the difference between the remaining value of the asset, the compensation amount and the recovered value (if any). In case the Financial Reserve Fund is not sufficient to compensate, the enterprise shall include the difference in the reasonable expenses of the enterprise when determining corporate income tax.
5. Enterprises leasing fixed assets must depreciate leased fixed assets.
6. Enterprises leasing fixed assets under financial leasing (referred to as financial leasing fixed assets) must depreciate the leased fixed assets as if they were owned by the enterprise according to current regulations. In case at the beginning of the asset lease, the enterprise leasing the financial leasing fixed assets commits not to purchase the leased assets in the financial leasing contract, the lessee enterprise is allowed to depreciate the financial leasing fixed assets according to the lease term in the contract.
7. In case of re-evaluation of the value of fully depreciated fixed assets for capital contribution, transfer when splitting, merging, consolidating, converting business types, these fixed assets must be valued by professional valuation organizations but not lower than 20% of the original value of the assets. The time of depreciation for these assets is the time when the enterprise officially receives the handover and puts the assets into use and the depreciation period is from 3 to 5 years. The specific time is decided by the enterprise but must be registered with the tax authority before implementation.
8. Enterprises with 100% state capital that determine the enterprise value for equitization according to the discounted cash flow (DCF) method, the difference in the increase of state capital between the actual value and the value recorded in the accounting books is not recorded as intangible fixed assets and is gradually allocated to production and business costs during the period but the time period does not exceed 10 years. The time to start allocating to costs is the time the enterprise officially converts into a joint stock company (has a business registration certificate).
9. Depreciation or cessation of depreciation of fixed assets is performed starting from the day (by number of days of the month) on which fixed assets increase or decrease. Enterprises shall account for increases or decreases in fixed assets according to current regulations on enterprise accounting regime.
1.3.3 Depreciation calculation methods:
Choosing the appropriate depreciation method for a business is important. First of all, it contributes to preserving fixed capital, effectively avoiding invisible wear and tear, and helps determine the exact cost, avoiding the phenomenon of fake profits and real losses that still exists in businesses. There are many
There are different methods to calculate depreciation of fixed assets in enterprises. Each method has its own advantages and disadvantages. Usually there are the following basic depreciation methods :
Straight-line depreciation method:
Type of fixed assets | Time of use (years) |
Houses, buildings | From 25 to 50 years |
Machinery and equipment | From 8 years to 12 years |
Means of transport | From 6 years to 10 years |
Management equipment and tools | From 3 years to 5 years |
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* Content of the method:
This is the method
The simplest depreciation method, commonly used to calculate depreciation of fixed assets in enterprises. According to this method, the annual depreciation rate and level are determined at a constant level throughout the life of the fixed asset and
determined by dividing the original cost of the fixed asset by its useful life.
The original price of fixed assets includes : the actual purchase price payable (price stated on the invoice minus any discounts or purchase rebates, if any), transportation, loading, unloading, installation, testing costs, interest on loans invested in fixed assets before handover and use, and taxes and registration fees (if any).
The useful life of fixed assets is the time the enterprise expects to use the fixed assets. It is determined based on the technical life and economic life of the fixed assets, taking into account the obsolescence of the fixed assets due to advances in science and technology, the purpose of use and the efficiency of use.
According to Decision 206/2003/QD-BTC, the estimated useful life of fixed assets is as follows:
The annual depreciation amount and annual depreciation rate are determined by the following formula:
NG
M KH =
T
M KH1
T KH = x 100% or T KH = x100% NG T
In which: M KH : Average annual depreciation rate.
T KH : Average annual depreciation rate. NG: Original price of fixed assets.
T: Time of use of fixed assets (years).
If the business deducts for each month, take the depreciation amount to be deducted for the whole year and divide it by 12 months.
In case the usage time or original price of a fixed asset changes, the enterprise must re-determine the average depreciation rate of the fixed asset by dividing the remaining value in the accounting books (:) by the re-determined usage time or the remaining usage time (determined as the difference between the registered usage time minus the used time) of the fixed asset.
The depreciation rate for the final year of the fixed asset's useful life is determined as the difference between the original cost of the fixed asset and the accumulated depreciation made up to the year before the final year of that fixed asset.
* Advantages and disadvantages of the method:
In general, the average depreciation method is commonly used because of its advantages. This is a simple and easy-to-understand calculation method. The depreciation rate calculated into the product cost will be stable and thus will create stable conditions.
product costing. Creating a competitive advantage for the business, in the business using the average depreciation method for all types of fixed assets of the business will reduce the amount of calculation work, convenient for planning the depreciation of fixed assets of the business. However, the disadvantage
The disadvantage of this method is that it does not accurately reflect the actual level of depreciation of fixed assets and at the same time the cost of products in the periods of using fixed assets will not be the same. Moreover, due to the average calculation, the ability to recover investment capital is slow and thus cannot limit the adverse effects of invisible depreciation (ie the decrease in value of fixed assets, mainly due to the progress of science and technology) on fixed assets in the enterprise.
Accelerated depreciation method:
People often use the accelerated depreciation method to overcome the disadvantages of the straight-line depreciation method. This depreciation method is used to accelerate the depreciation of fixed assets in the first year of use and gradually reduce the depreciation rate over the life of the asset. Therefore, the enterprise can recover capital quickly. This method is very convenient for newly established enterprises because in the first years they want to quickly turn around capital to develop production.
The accelerated depreciation method has two ways of calculating the annual depreciation rate and amount, which are the declining balance depreciation method or the sum of years of use depreciation method:
" Depreciation method by decreasing balance .
According to this method, the annual depreciation amount is calculated by multiplying the remaining value of the fixed asset over its useful life by a constant depreciation rate. Thus, the depreciation level and rate over its useful life will gradually decrease. The annual depreciation amount over its useful life can be calculated as follows:
M when = G cdi x T kh
In which: M when : Depreciation rate in year i.
G cdi : Remaining value of fixed assets at the beginning of year i.
T kh : Rapid depreciation rate
i: Order of years of fixed asset usage.
The accelerated depreciation rate is determined as follows:
T kh = T KH × Hđ
In which: T kh : Rapid depreciation rate
straight line
T KH : Annual depreciation rate according to depreciation method
Hđ: Adjustment factor
The adjustment factor is shown in the following table:
Adjustment coefficient table
Time of use of fixed assets
Adjustment factor (times) | |
Up to 4 years | 1.5 |
Over 4 to 6 years | 2.0 |
Over 6 years | 2.5 |
The declining balance depreciation method is often applied to businesses in fields with technology that requires rapid change and development and meets the following conditions: new fixed assets (not used); machinery, equipment; measuring and experimental tools .
The declining balance depreciation method has the basic advantages of more accurately reflecting the depreciation of fixed assets in product value, quickly recovering investment capital for purchasing fixed assets in the first years of use, and limiting
The disadvantage of this method is that the calculation of depreciation and annual depreciation rate is more complicated, and the accumulated depreciation amount up to the last year of the fixed asset's useful life is not enough to compensate for the entire initial investment value in the enterprise's fixed assets.
" The depreciation method is based on the total number of years of use .
According to this method, the depreciation amount is calculated by multiplying the initial value of the fixed asset by the depreciation rate that decreases over the years. This depreciation rate
is determined by dividing the remaining years of use by the total number of years of use. The calculation formula is as follows:
M KHI = NG x T KHI
2 x ( T- t +1 )
TKHi =
T x ( T+1 )
In which: M KH : Annual depreciation rate.
NG : Original price of fixed assets.
T KHI : Depreciation rate by year of use.
T: Expected time of use of fixed assets.
t : The year order for which the depreciation rate needs to be calculated.
The depreciation rate of this method is not fixed every year, it will change in a decreasing direction and can also be calculated in the following way:
Remaining years of fixed assets in order of years of use | |
TKHi = | Total number of remaining years of use of fixed assets calculated in order of years of use |
This method has the advantage of being able to recover capital quickly, because it can prevent invisible wear and tear to the maximum extent, on the other hand, it overcomes the disadvantages of the declining balance depreciation method. That is, it ensures that the accumulated depreciation amount up to the last year of the fixed asset's useful life will compensate for the initial value of the fixed asset.
However, the application of rapid depreciation methods must be under conditions where the business can afford the costs.
Unit price depreciation method.
Fixed assets in the enterprise are depreciated using the depreciation method based on quantity and volume of products as follows:
- Based on the economic and technical records of fixed assets, enterprises determine the total quantity and volume of products produced according to the design capacity of fixed assets, referred to as output according to design capacity.
- Based on the actual production situation, the enterprise determines the quantity and actual volume of products produced monthly and annually of fixed assets.
- Determine the monthly depreciation rate of fixed assets according to the formula below:
Monthly depreciation of fixed assets= | Number of products produced per month | X | Average depreciation rate calculated for a unit of production product |