Depreciating Fixed Assets

There are three primary methods for depreciating fixed assets: straight line, units-of-production, and double declining balance. Regardless of the method used, there are three things you must find out before you can depreciate any fixed asset. Of course, you have to know the initial cost of the fixed asset so you have a starting value to work with. You also need the expected useful life of the fixed asset and its estimated value at the end of that useful life. The initial cost of a fixed asset includes more than just the purchase price of the item. Any set-up or installation costs required to put the asset into service should be included in the initial cost. Sales tax and freight are also generally added in and made part of the fixed asset´s depreciable value.

Depreciating fixed assets: Useful life

The expected useful life is usually determined by using the IRS guidelines for fixed asset categories. Equipment and machinery is expected to have seven years of useful life. Cars and light trucks are generally given a five-year useful life for depreciation purposes. These guidelines are only applicable to depreciation for tax purposes. Companies may be able to use their own useful life estimates to calculate depreciation for their financial statements, depending on their reporting requirements.

Comments

About Author