Keywords: depreciation of fixed assets; Depreciation method; enterprise accounting
First, the definition of depreciation of fixed assets and the main influencing factors
The most widely accepted definition of depreciation of fixed assets is a systematic and reasonable method to allocate the cost of assets to each income period. This definition is a static concept. The original price or other value of an asset remains unchanged during its service life, and the total depreciation is equal to the original price minus the residual value.
The depreciation of fixed assets is mainly affected by the following four factors: first, the depreciation base, that is, the original value or book value of fixed assets. According to the current accounting system, the original price of fixed assets is generally used as the basis for depreciation, but the enterprise that chooses the double declining balance method is based on the net book value of fixed assets; Second, the depreciation period, which is directly related to the depreciation rate, is the key factor affecting the depreciation amount; Third, the depreciation method. Depreciation methods of fixed assets include life average method, workload method, life sum method and double declining balance method. The enterprise shall choose the depreciation method according to the expected realization mode of the economic benefits contained in the fixed assets, and once the depreciation method is selected, it shall not be changed at will; Fourth, the net salvage value refers to the estimated recoverable salvage value of fixed assets after deducting the cleaning costs. An enterprise shall reasonably estimate the net salvage value of fixed assets according to the nature and use mode of fixed assets.
Second, the main methods and comparison of depreciation of fixed assets
1. depreciation calculation method
Depreciation method is a rule that enterprises should follow when extracting depreciation of fixed assets. Usually, there are two depreciation methods for fixed assets, one is the straight-line method, and the other is the accelerated depreciation method. According to the present situation and actual requirements of Chinese enterprises, the Ministry of Finance has reformed the single depreciation method, added accelerated depreciation methods, and allowed enterprises to coexist with multiple depreciation methods. Average life method, workload method, mileage method and accelerated depreciation method can be used by general enterprises. Accelerated depreciation methods include declining balance method, double declining balance method, sum of years method, average life method, workload method, annual declining rate method, annuity method and sinking fund method. Considering the actual situation in China, the Ministry of Finance stipulates that there are generally four depreciation methods for enterprises to choose from, namely, the average life method, the workload method, the double declining balance method and the sum of years method. According to the current situation of enterprises and the financial affordability of the state, China has also limited the scope of application of accelerated depreciation methods. For electronic production enterprises, shipbuilding enterprises, machinery enterprises that produce "mother machines", aircraft and automobile manufacturing enterprises, chemical and pharmaceutical production enterprises and other industrial enterprises approved by the Ministry of Finance, the depreciation of machinery and equipment can be accelerated by double declining balance method or sum of years method.
2. Discussion on several common depreciation methods.
Although there are many depreciation methods, there are only four depreciation methods that enterprises are allowed to choose in China: straight-line method, workload method, double declining balance method and sum of years method. Once the depreciation method is determined, it shall not be changed at will. If changes are needed, they should be explained in the notes to the financial statements. In recent years, people have shown great interest in the accelerated depreciation method. The author also thinks that this method is more practical and covers more problems than other methods. Four methods are described and compared below.
(1) straight line method. The straight-line method, that is, the average life method, assumes that depreciation is due to the passage of time rather than the use relationship, and thinks that the decisive factor for the decline of use potential is the obsolescence and damage caused by the passage of time rather than the tangible wear and tear caused by use. Therefore, it is assumed that the service potential of assets is the same in all accounting periods, regardless of their actual use.
Because the straight line method is simple, it is only correct under the following conditions. ① The interest factor can be ignored, or the investment cost is assumed to be zero; (2) The cost of repair and maintenance is fixed during the whole service life of the asset; ③ The asset efficiency in the latest year is the same as that in the first year; (4) The income (or cash flow) from the use of assets is fixed during the whole service life; ⑤ All necessary estimates (including expected service life) can be predicted with considerable certainty.
(2) Workload method. The workload method is a method to calculate depreciation according to the expected workload of fixed assets in the calculation period. The workload method is essentially a supplement and extension of the average life method. According to the regulations, passengers, trucks, large-scale equipment and large-scale construction machinery of enterprise professional fleet can be depreciated by workload method. Due to the different workload indicators of various professional equipment, the workload method can be divided into mileage depreciation method and working hours depreciation method. The workload method assumes that depreciation is a variable, not a fixed cost, that is, it assumes that the decrease in asset value is not due to the passage of time, but to use. For many kinds of assets, the assumption of workload method is reasonable, especially when tangible loss is more important than economic depreciation. The main purpose of using this depreciation method is to allocate input value according to each service unit, and the measurement of service value reduction is secondary.
3. Suggestions on improving the depreciation of fixed assets
All the above depreciation methods are arbitrary, and the data they are based on, such as cash flow or net income, are quite difficult to measure. Therefore, depreciation methods need to be constantly updated and improved. Options that can be considered are:
(1) The value of the remaining assets is measured by the market price at the end of each period, and there is no distribution method;
(2) Replace the income statement with cash flow statement and capital flow statement to avoid depreciation distribution;
(3) Pay attention to the use of predictable unified depreciation method, regardless of its logic;
(4) Try to adopt a compromise distribution method.
In essence, depreciation is also a kind of expense, but this kind of expense has not paid real monetary funds during the accrual period, and this kind of expense has already occurred in the early stage, and the income of this kind of expense is realized within the effective use period after the assets are put into use. Depreciation needs to be accrued from accrual basis principle or income-expense ratio principle. Enterprises should choose depreciation methods reasonably according to the applicable conditions of various depreciation methods.
References:
[1] Niu Fengying as a female student: analysis of the impact of different depreciation methods on enterprise income tax [J]. Journal of Hebei Vocational and Technical College, 2006, (0 1).
[2] Jiang Mingxia. How should enterprises correctly accrue depreciation of fixed assets [J]. Journal of Guiyang Zhu Jin University, 2004, (03).
[3] Han. On the choice of depreciation evaluation method of fixed assets [J]. Journal of Xinjiang Petroleum Education Institute, 2004, (0 1).
Fixed assets can participate in production and operation for a long time, and keep the original physical form, but its value gradually shifts to the product cost with the use of fixed assets, which constitutes the operating cost of enterprises. This part of the value gradually transferred with the wear and tear of fixed assets is the depreciation of fixed assets [1]. In order to ensure the simple reproduction of enterprises and realize the correct matching of income and expenses during the period, enterprises must withdraw depreciation within the effective use period of fixed assets.
Discussion on calculation method of depreciation of fixed assets
Source: Author: Editor: July 2, 2008 1 Browse:1Print papers for collection.
For a long time, the accounting circles in China have been discussing the calculation method of depreciation of fixed assets. Due to the transfer of the value of fixed assets, it is difficult to accurately judge its actual consumption, so the determination of the depreciation amount of fixed assets cannot be ruled out with certain subjective estimation components, which leads to the deviation between the depreciation amount and the consumption of fixed assets. With the progress of production technology, the payback period of fixed assets investment is shortened, and the depreciation method of fixed assets will have an adverse impact on the speed of economic development and economic benefits. Therefore, it is an urgent task for financial workers to correctly calculate depreciation, scientifically analyze the subjective factors affecting the consumption of fixed assets and their influence degree, and choose appropriate methods to make the consumption of fixed assets close to depreciation. I. Theoretical Basis of Depreciation of Fixed Assets The fixed assets of industrial enterprises are the means of labor in the production process. In the process of production, the value of labor materials is gradually lost and transferred to the value of products. This value transfer is included in the product cost in the form of depreciation and compensated by sales. The ratio of the value of labor materials transferred to products due to wear and tear to their wear and tear is the depreciation rate of fixed assets. Therefore, the depreciation of fixed assets should be equal to the value transferred due to wear and tear. The value of fixed assets is decreasing in the production process, and the value transferred to products through the currency reserve (depreciation fund) formed after sales is increasing. When the fixed assets can no longer be used or should not be used, the depreciation fund accumulated by value compensation is used for physical renewal. The loss of fixed assets can be divided into tangible (material) loss and intangible (functional) loss. Tangible loss refers to the wear and tear of fixed assets in the process of use and the loss caused by natural forces. The material losses caused by the use of fixed assets are obvious and have always been valued by people. The natural loss of fixed assets is inevitable whether it is used or not, and it is a factor that cannot be underestimated in the tangible loss of fixed assets. The two forms of tangible loss of fixed assets will lead to the decline of physical performance and production efficiency of fixed assets, and will gradually lose their use value after a long or short period of time. Therefore, it is the main basis for the depreciation of fixed assets. Second, the comparison of depreciation methods The understanding and evaluation of various depreciation methods should be analyzed in detail, including the theoretical basis of various methods, the impact of these methods on economic development, and the limitations of social system and production management level on the application of some methods. Below, simply analyze several commonly used depreciation methods. (1) Life average method is also called straight line method. The theoretical basis of this method is that the value of fixed assets is transferred according to the average degree of loss of its use value. In other words, it is a method to distribute the depreciation of fixed assets to each period evenly, and the depreciation amount calculated by this method is equal in each period. This method has many disadvantages. First, it can't correctly reflect the actual loss of fixed assets, so it can't guarantee the authenticity of economic indicators such as depreciation of fixed assets, net value of fixed assets and product cost, which brings many difficulties to economic analysis and management by using these indicators. Second, because the comprehensive depreciation rate is low and the turnover rate of fixed assets value is lower than the economic turnover rate of use value, the accumulation of depreciation fund cannot guarantee the renewal of backward technology. (2) Workload method. This method is to extract depreciation according to the actual workload of fixed assets. This method makes up for the shortcomings of the life-span average method, which only emphasizes the service time and does not consider the service intensity. For example, machinery and equipment can be depreciated according to the actual output and the depreciation quota of unit output. For example, cars can be depreciated according to the actual mileage and unit mileage depreciation. The advantage of this method is that both the utilization rate of fixed assets and the influence of intensity utilization rate on depreciation are considered. This method is more suitable for enterprises with seasonal and intermittent production. Because the output of this kind of enterprise is different in each calculation period, and the loss is large in the period of high output, it is in line with the cost accounting requirements to bear more depreciation expenses. Its disadvantage is that the natural loss of machinery and equipment is also distributed according to output, which is inappropriate in theory. (three) the sum of years method and double declining balance method. These two methods are also called accelerated depreciation method. The theoretical basis of accelerated depreciation method is that fixed assets with high initial use value should bear more depreciation, while those with low later use value should bear less depreciation. It should also be noted that the maintenance cost of fixed assets in the initial stage of putting into use is less, and the longer it is used, the more maintenance it needs. Moreover, once the new machine is used, even if there is little wear and tear, its value will drop a lot, so it should depreciate more in the first few periods and gradually decrease later. This combination of depreciation provision and maintenance fee can automatically adjust and balance the expenses of each period, which is in line with the principle of average distribution of expenses. The main advantages of accelerated depreciation method are: (1) It is based on the principle of matching expenses and benefits, so it can ensure the scientificity of cost accounting; (2) From the time value of money, this method can quickly recover the investment in fixed assets and promote the upgrading of machinery and equipment in enterprises; (3) Scrapping fixed assets in advance under special circumstances can reduce losses compared with the average method. Third, the choice and decision of depreciation method The key to the choice of depreciation method lies in the attitude towards the theoretical basis of various depreciation methods. If we further compare various methods, we will find that each method has its own advantages. Generally speaking, the advantages of different methods are mutually exclusive, and some are even completely contradictory. In my opinion, the theoretical basis of accelerated depreciation method is relatively scientific. Accelerated depreciation method has been widely used in developed capitalist countries. During World War II, in order to promote the transition from civilian industry to military industry, the United States adopted the accelerated depreciation method for the equipment produced by military industry for the first time in 1940, which accelerated the development of military industry. In order to accelerate the development of the national economy, the accelerated depreciation method will be extended to other industries in the future. In fact, the accelerated depreciation policy of fixed assets is the country's strong support for equipment renewal, which expands the scale of self-raised funds of enterprises, thus providing a stable and reliable source of funds for fixed assets investment. This not only ensures the simple reproduction of fixed assets, but also accelerates the modernization process of factories and enterprises. Japan has also adopted the accelerated depreciation method since the 1950s, which has played an important role in accelerating the capital recovery of enterprises, realizing equipment renewal and technological modernization. To sum up, it can be considered that accelerated depreciation method is a scientific depreciation method that meets the requirements of commodity economy development. As long as we take an objective attitude towards it, make scientific analysis and make use of it, we will certainly be able to do this work well. (Author: Financial Settlement Center of Construction Department of Jilin Province)