Amortization in the economy and methods of its calculation

The concept of depreciation is used today in various spheres of human life. So, in the technical sense, the term is equivalent to the process of mitigation, in insurance - the deterioration of the object. This article deals with depreciation in the economy and the methods of its accrual.

What it is?

Under depreciation in the economic sense, it is customary to understand the process reflecting the gradual transfer of the value of fixed assets to the value of the product that was produced and sold, as they wear out (in this case both material and moral wear is important).

Thus, in the process of aging buildings and various structures, cars and production equipment, as well as other OS from the cost of the final product, cash deductions are activated, the main purpose of which is the further renewal. Such cash flows are called depreciation charges. For this, depreciation funds are formed , where absolutely all the funds listed are accumulated after the finished product is sold.

The percentage that is needed to recover the value of the share of the capital goods that have been subject to depreciation during the year is calculated as the ratio of the amount of deductions for depreciation produced annually to the value of the OS. It is called the depreciation rate.

Consider the example

As it turned out, depreciation in the economy serves to transfer the cost of the OS to the cost of the finished product. What is the norm of depreciation acceptable in this or that case? For example, at the enterprise of industrial type, engaged in metal working, the lathe machine is involved. Its cost is 300,000 rubles, the service period is 30 years. Thus, a calculation is possible that will show that the amount of deductions is equal to 10 thousand rubles a year (300 000/30 = 10 000).

For this example, you can calculate the depreciation rate of this machine:

10,000 / 300,000 = 3.3%.

Amortization, the formula of which is extremely simple, is usually formed by state bodies in the legislative order. This allows you to indirectly control the process of updating the funds of fixed assets of economic structures. Often such a balance helps to form amortization funds in the shortest possible time by establishing a method of accelerated depreciation (for example, the depreciation rate is not 5, but 25 percent). This is how the state acquires the opportunity to freeze depreciation deductions from taxes.

Amortization in the economy and how it is accrued

Today, there are five methods for calculating depreciation. It is important to note that the application of each of them for the grouping of similar fixed assets is appropriate during the entire useful life. The latter is understood as the period when the application of the object allows you to receive income or serves to fulfill the objectives of the economic structure itself. As it turned out, depreciation in the economy is an indicator that can be calculated in one of five ways.

The most common of these is the linear method (employs 70% of enterprises). It is considered to be the simplest. The bottom line is that each year an equal share of the value of this type of asset is amortized:

A = (C (first) * H (a)) / 100, where

A - the amount of deductions annually, C (first) - the original value, H (a) - the rate of deductions.

Other methods

We have already fully considered what amortization is in the economy and why it exists. In addition to the presented method of calculating it, there are other methods. Thus, the mechanism of the declining balance ensures that the amount of deductions for the year is determined by the residual value of the object at the starting point of the reporting period and the depreciation rate calculated by means of the SIP:

A = C (ost) * (k * H (a) / 100),

Where k is the acceleration coefficient.

The method of write-off of the value of the total number of years of IPS implies the calculation of the annual amount of depreciation based on the initial value of the OS object, as well as the annual ratio (in the numerator - the number of years until the end of the service life of the facility, and in the denominator - the total number of years of service):

A = C (first) * (T (ost) / (T (T + 1) / 2)).

Techniques used less often

Amortization, the formula of which is presented above, can be counted in other ways. The method of writing off the value in proportion to the volume of the product implies the production of depreciation deductions on the basis of the actual value of the volume of the product in the reporting period and the ratio of the initial value of the object and the estimated volume of the product or work for the entire useful life:

A = C / B.

As it turned out, depreciation in the economy can be calculated through the use of various methods. The final element of this list is the calculation methodology in proportion to the amount of work performed. It is appropriate, as a rule, for motor transport. In this case, depreciation rates are set as a percentage of the initial cost of the facility for every 1,000 kilometers of mileage.