Buying Assets and Depreciation: What You Need To Know

1. Buying Assets and Depreciation: What You Need To Know Depreciation refers to the decline in the value of any equipment, vehicle or machinery when we use them and ultimately they wear out. For the accounting purpose in any business, this depreciation is used to write off the asset's value over time. If you are planning to buy any kind of assets then you should understand clearly about the depreciation. Oleksiy Nesterenko says that depreciation facilitates the cost spreading for several years against the profits of those years instead of having its effect only on the year when you purchased it. Although, you do not get benefit for the depreciation for tax yet it is possible to get the advantage of capital allowance by claiming the price of assets against the income that is taxable. How to Work It Out: Before buying any assets, you must understand how to work out the depreciation of a particular asset. Several factors affect depreciation. When will you be going to start the asset in question? What is the expected life of the asset for the period the asset will remain useful? What is the purchase price of the asset at the time of buying? For how much amount you will be able to sell it if you wish at the end of its utility period. For example how much you will get on selling as scrap etc. Moreover, you will also take in to the account if there is any additional cost required from disposing the asset. Many fixed assets such as computer hardware, plant and machinery, motor vehicle and other trade tools have a certain life that is useful for the owner and after the end of this period they wear out and become obsolete. The length of time for which a particular asset will be used productively is used for spreading the cost of the asset. All this exercise is performed for showing the cost of the asset as an expense that is creating profits over the year instead of just writing off it in the year when you purchased it.

2. The useful life of the asset varies vastly with the type of asset. For example, the useful life of a computer may be as little as three years. It may be working perfectly, but by then the chances are more of it becoming obsolete. Similarly, the expected life of a motor vehicle is normally between three and five years. On the contrary, if you properly maintain the plant and machinery of any manufacturing unit, its useful life may go up to 15 to 20 years. When we show it in the balance sheet, we need to record the depreciated cost of the previous year along with the provision for depreciation this year. We can find out the current value of asset by subtracting this provision from the historical value. Oleksiy Nesterenko is a Director and Co-founder of Afenest Advisory. He is involved in origination and execution of transactions for companies and their stakeholders with a specific focus on Technology sector. The clients of Oleksiy Nesterenko ranged from entrepreneurs who were starting out with just an idea, through startups seeking to improve their financial processes, through mid-sized companies seeking to grow through M&A, to large multinational corporations seeking to disposes some of their assets. Despite being a diverse group, all clients shared one common goal – need to access top quality financial expertise and advice to help them manage their business finances and growth plans more effectively. And Oleksiy Nesterenko Startup Finance is just doing the same. Visit: http://oleksiynesterenko.webs.com/ Call +1 (310) 710 4248