Fixed assets depreciation

Depreciation is the allocation of the cost of a fixed asset over a period of time for accounting purposes.

In 1C:Drive depreciation charges are calculated and recorded on a monthly basis. The calculation is based on the depreciation method and parameters (such as a fixed asset cost and useful life).

1C:Drive supports Straight-line and Units-of-output depreciation methods. For each fixed asset, choose the method according to the use or purpose of the fixed asset.

Depreciation parameters are specified in the fixed asset recognition documents and fixed asset depreciation changes documents.

To record depreciation charges for fixed assets:

For fixed assets with the Units-of-output depreciation method: during a month, create fixed asset usage documents to record the actual number of units that the fixed asset produced (units of output).
At the end of the month, use one of the following options to calculate and record depreciation charges:
- Go to Company > Month-end closing and run month-end closing with the Accrue depreciation checkbox selected. This automatically generates a fixed asset depreciation document
- Create a fixed asset depreciation document manually.

Depreciation charges for fixed assets are determined as follows:

1C:Drive selects fixed assets that are recognized and must be depreciated in current month.
For this step, you can do the following checks:
- To check that fixed assets are recognized, go to the Fixed assets catalog, open a fixed asset card, click Fixed asset statuses in the link bar, and check the State column for the Recognized value.
- To check that fixed assets must be depreciated, go to the Fixed assets catalog, open a fixed asset card, click Fixed asset statuses in the link bar, and check the Accrue depreciation value.
- To check that fixed assets must be depreciated in the current month, go to the Fixed assets catalog, open a fixed asset card, click Fixed asset statuses in the link bar, and check the Period date and the Accrue depreciation in the current value.
For fixed assets with the Straight-line depreciation method, 1C:Drive checks that Useful life is not over yet.
For fixed assets with the Units-of-output depreciation method, 1C:Drive checks that units of output are recorded for the current month and are within Manufactured product release.
1C:Drive applies all parameters listed above to the current cost of fixed assets and calculates depreciation charge for the current month, taking into account the amount of already accumulated depreciation.
For this step, you can do the following checks:
- To check the current cost, go to the Fixed assets catalog, open a fixed asset card, click Fixed asset parameters in the link bar, and check Cost for depreciation calculation.
- To check already accumulated depreciation, go to the Fixed assets catalog, open a fixed asset card, click Accrued depreciation in the link bar.

To monitor depreciation charges, use the following reports:

Straight-line depreciation

Straight-line depreciation is a method commonly used when an asset's value decreases steadily over time at around the same rate. This method is useful when an asset's value is closely related to the number of years it is in use. For example, this method applies to a piece of equipment (such as a computer) that you expect to use at the same rate for several years until it stops working.

Straight-line depreciation is calculated by the following formula:

Straight-line depreciation = Initial cost / Useful life

where:

Initial cost is the cost incurred to acquire a fixed asset. For example, the asset's purchase price.
Useful life is the time period during which a fixed asset is expected to be functional and fit-for-purpose. In 1C:Drive, the time period is specified as a number of months.

For example:

A piece of equipment costs $25,000. Its estimated useful life is 120 months. Then, depreciation expense per month is calculated as follows:

Depreciation charge = $25,000/120 = $208.33 per month

Units-of-output depreciation

Units-of-output depreciation is a method that allows to allocate the cost of a fixed asset based upon its use. This method is useful when an asset's value is more closely related to the number of units it produces rather than the number of years it is in use.

Units-of-output depreciation applies well to machinery and its manufacturing units. For example, for companies with seasonal activities or a cyclical industry where some years are more productive than others. Such companies can apply units-of-output depreciation to report higher depreciation during productive years and offset them in the years with low productivity.

Units-of-output depreciation is calculated by the following formula:

Units-of-output depreciation = Initial cost / Manufactured product release × Quantity

where:

Initial cost is the cost incurred to acquire a fixed asset. For example, the asset's purchase price.
Manufactured product release is the total number of units that a fixed asset is expected to produce over its useful life.
Quantity is the number of units that a fixed asset produced in a certain period.

For example:

A machine cost is $500,000. Its useful life is expected to end after producing 250,000 units. The machine produced 1,000 units during a month. Then, depreciation charge per month is calculated as follows:

Depreciation expense = $500,000 / 250,000 × 1,000 = $2,000 per month

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