Amortization
Amortization
Amortization (depreciation)
methodsof fixed assets is a gradual transfer process of fixed assets cost on
production price with the purpose of funds accumulation for their subsequent
repairing (complete compensation of depreciation by buying or new capital
assets building). Thus depreciation is a money term of fixed assets wear, and
the annual sum of depreciation decrees must correspond to the fixed assets wear
degree for a year and determined in accordance with the amortization quota
(depreciation rate).
Aq=*100%,
- Annual
amortization quota - Term of the fixed assets object useful useperiod must take
into account both physical and moral wear of fixed assets.(depreciation)
methods.method; method of fixed assets residual value; methods by the sum of
years number of the useful term use; methods proportionally to the volume of
the products produced;amortization;methodis a method which consists of even
depreciation charge (начисление износа) during the useful use of fixed assets
object term. At this method depreciation charge, coming from the original cost
(первоначальная стоимость) of object and amortization quota (норма амортизации),
calculated from the useful term of the object’s use. It is the most simple and
most often meeting calculation method. Disadvantage of this method is of during
the equipment service term there are his outages, breakage and incomplete
loading for changing. It results that during the real production equipment
erratically (неравномерно) wears out at times. In addition, this method does
not take into account the obsolescence of the fixed assets, which reduces the
cost of the machines made or diminishes their use value due to introduction to
exploitation of new, more effective machines and equipment. It stipulates (это
обуславливает) a pre-schedule (досрочное) , i.e. to completion of physical
wear, leaving of out-of-date technique and conducts to its underamortization.
For example, an enterprise bought an equipment, which term of the useful use is
eight years, then a rate of depreciation on renovation will be 12,5% in a year,
here. The rate size of depreciation does not change during all period of fixed
assets exploitation.
annual =
of fixed
assets residual value (способ уменьшения остаточной стоимости)annual sum of
depreciation charges (амортизационные отчисления) is determined coming from the
residual value (остаточная стоимость) of fixed assets object’s on the beginning
of a year and amortization quota on renovation, calculated coming from the term
of this object useful use:
amortization
linear method disadvantage
Sam annual =
of method
consists in the sum of depreciation charges, taken on prime cost, will be
diminishing with each by the subsequent year of this object exploitation.
Depreciation methods for the sum of
years number of the useful term use (метод амортизации по сумме чисел лет полезного
использования)method from point of the financial planning is preferable that
allows already at the beginning of exploitation to discard greater part of
fixed assets cost. The rate of charge-off is slowed further, that provides the
cost unit decline. The annual sum of depreciation charges is determined by
formula:
Sam annual =* residual
valuei
- sum of remaining years of the
useful term of the object’s use;value - remaining period of the useful term of
the object’s use in i-year depreciation methods proportionally to the volume of
the produced products (метод списания стоимости пропорционально объёму
продукции)this case depreciation charge is produced coming from the natural index
of products (works) volume in a reporting period (отчётный период) and
correlation of original object’s cost and supposed volume of products for all
period of the useful use:
annual =
original cost * ,
- Actual products production in i
year
- planning volume of products
production for all period of the useful use.of this method will allow to
enterprises to take into account a physical wear and mode of the object’s use
(режим использования объекта).application any of methods an extra charge to
depreciation is produced monthly coming from a 1/12 annual sum, depreciation
decrees are discarded on a original price during a period to which they belong
and charged extra regardless on enterprise activity results during this
period.objects of fixed assets consumer properties of which do not change in
time are not subject to depreciation (lot lands and other objects of nature
management).amortizationactual value of the accelerated depreciation is a
postponement of obligations redemption under the income tax, as in the first
years of equipment exploitation considerable part of profit yield heads for
forming of depreciation decrees, but not arrived.set aside tax in the
conditions of market economy means an interest-free loan for indefinite term,
given to the taxpayer. At the same time extra charge to depreciation even with
the ordinary method after the overvalues of the fixed assets means for
enterprises exceeding of prime price above a profit yield from the products
realization and absence of enterprise sinking fund earnings. At low production
profitability an effect from reduction of obligations under an income tax isn’t
high also.point of profitability, overstating of depreciation is ruinous, from
point of money facilities streams - effectively to the moment, while the
financial activity result is positive. If an enterprise is «on a card index»
there is no sense to get tax benefits due to the mechanism of the accelerated
depreciation.in the conditions of high inflation depreciation decrees as a
source of investments lost the value in connection with the enterprise
orientation on a short-term survival and use of depreciation on circulating
assets lack coverage. Thus, depreciation is an ambivalent economic concept.
From one side, depreciation is a money term of capital assets wear, and
depreciation contributions are one of constituents of unit cost, depreciation
growth results on the prime price increase and the decline of enterprise income
(accordingly and income tax). On the other hand, depreciation contributions
after products realization are accumulated in a sinking fund which setting
consists of providing of capital assets necessary reproduction. By this reason
increase of sinking fund, as an investments source, due to the speed-up of
capital assets cost charge-off is economic expedient for an enterprise.