A fixed asset is a set of items intended to be used on a long-term basis for a company’s activity. In other words, they are assets that a company owns for a long time and that are not intended for resale.
There are three main categories of fixed assets: tangible assets, intangible assets and financial assets.
Financial assets are the monetary assets of a company:
Advances and loans granted
Deposits and guarantees
Property, plant and equipment:
Property, plant and equipment are the physical assets that a company owns:
Intangible assets are non-material and non-financial assets:
Depreciation of fixed assets
It is essential to know the value of your equipment and its accounting depreciation in order to evaluate the value of your company over time and to ensure the accounting follow-up. The depreciation allows to notice the depreciation of an asset due to wear, time or obsolescence.
Depreciation of fixed assets consists of spreading the purchase value of an asset over several years. The duration of the depreciation of fixed assets is equivalent to the period of use of the asset concerned. The duration of depreciation varies according to the nature of the asset.
Example of amortization period:
Automobiles: 4 to 5 years
Computers: 3 years
Commercial buildings: 20 to 50 years
When a company invests in equipment or any type of fixed asset, it must depreciate its assets. A portion of the value of the asset can be deducted from the accounting result.
How to calculate the depreciation of fixed assets?
Depreciation spreads the purchase cost of the equipment over the years it will be used. There are two methods for calculating the loss in value of an asset:
Straight-line depreciation calculation
Straight-line depreciation is the simplest method of calculating depreciation. In this calculation, the amount of expense is the same each year over the useful life of the asset.
This method consists of calculating depreciation by dividing the cost of the asset by the number of years the asset will be used.
Straight-line depreciation = Value of the asset / number of years
Declining balance calculation
Declining balance depreciation takes into account a faster depreciation of the asset during the first years of use in its calculation. It is obtained by multiplying the straight-line depreciation rate by a coefficient. The value of the coefficient depends on the duration of use and the nature of the equipment concerned.
For an amortization period of 3-4 years, the coefficient is 1.25.
For a depreciation period of 5-6 years, the coefficient is 1.75.
For an amortization period of more than 6 years, the coefficient is 2.25.
Declining-balance depreciation = Straight-line depreciation x coefficient
The assets that are eligible for declining balance depreciation are mainly capital goods:
Industrial buildings with a lifespan not exceeding 15 years
Use inventory management software
For an organization, it can be useful to know the value of the assets they own. With Hector, it is possible to activate the accounting depreciation feature. This way you can quickly get an overview of all your assets and the value of your investments.
Protect your business investments, increase your management performance and limit your time and material losses. Offer you a simple way of having access to important data in the system when you need it.