Depreciation of fixed assets.
In accounting depreciation represents a regular distribution of the first
cost of fixed assets for all period of them useful economic life. Usually,
except the land, fixed assets have a limited number of years of useful
economic life.
The term of useful economic life is defined by organization at
adoption of an object.
Definition of the term of useful economic life of fixed assets at its
absence in specifications is based further on:

Expected term of use of this object according to expected
productivity or capacity of application;

Expected physical deterioration depends on a mode of
operation, natural conditions and influence of the aggressive
environment, a system of scheduled prevention of the kinds of
repair;

Legal and other limitations of use of this object (for example,
term of rent).
Depreciation of the object of fixed assets begins with the first month
following after the month of adoption of this object to production, then we
depreciate this object completely or write off this object.
Depreciation ceases from the first of month following after the month,
in which the cost of these assets was transferred to the cost of production
absolutely, or this object is written off .
In 1998 all enterprises at depreciation’s calculation of fixed assets for
the purposes of taxing should be guided by uniform standards of
amortisation deductions on complete recovering of the fix goods of a
national economics affirmed by the decree SM USSR from October 22, 1990
№ 1072.
The standards of depreciation are established in percentage of the cost
of fixed assets, except rolling-stock (cars and buses), which the standard of
depreciation established in per cent of its cost on 1000kms of run on.
If depreciation of fixed assets is absent in digest of the uniform
standards of depreciation, the standards of depreciation on complete
recovering on similar fixed assets are taken.
Depreciation of fixed assets is calculated in one of the following ways:

Straight-Light Method

Reducing Balance Method

Sum of the years’ digits

Depletion unit method
The annual sum of depreciation is defined by:
Straight-Light Method – this allows an equal amount to be charged as
depreciation for each year of expected use of the assets.
The basic formula is:
D=
C
T
D – depreciation per annum
,
C – cost of the fixed assets
Т – term of effective use (useful economic life)
Reducing balancing method – to calculate depreciation annually, a
fixed percentage is applied to balance where the costs are not yet
allocated as an expenses at the end of the previous accounting period.
The basic formula is:
D=
RС
Т
D – depreciation per annum
,
RС – residual cost of fixed assets (cost not yet
apportioned)
Т – term of effective use (useful economic life)
Sum of the years’ digits – it provides higher depreciation to charge
early in life the assets with lower depreciation in later years.
The basic formula is:
(Т-m+1) * С
Dm =
,
Т
i
Dm – depreciation per annum m
С – cost of fixed assets
Т – term of effective use (useful economic life)
i=1
m – number of year from the beginning of use of
object of fixed assets
Т
 i - sum of number of term of useful economic
i=1
life
Depletion unit method – amount of depreciation is depend on a natural
parameter of production’s volume (works) in accounting period and volume
of output (works) for all period of this object’s use.
The basic formula is:
Dm =
С * Vm
,
Vplan
Dm – depreciation per annum m
С – cost of fixed assets
Vplan – intended volume of output
Vm – volume of output
Within accounting year depreciation of objects of fixed assets is
charged monthly at a rate of 1/12 of annual sums.
The use of every undermentioned ways must be used for all of its
useful economic life.
The purpose of depreciation is to spread the total cost of the assets
over the periods, in which it is available to use. The chosen method should
allocate the cost for each period in accordance with the amount of benefit
gained
from
the
use
of
the
assets
in
the
period.
For example, a given assets costing is 100 000 RUB which will be in use for 5 years
Sums of the charged depreciation on years.
Method of depreciation
1 year
Straight-Light Method
Reducing Balance Method *
Sum of the years’ digits **
rub
40 000
35 000
30 000
25 000
20 000
15 000
10 000
5 000
0
20 000
20 000
33 333
2 year
3 year
20 000
16 000
26 667
3
4
20 000
10 240
13 333
5
year
1
2
3
4
5
year
* the first year residual cost of fixed assets (cost not yet apportioned) = 100 000 rub,
in 2-d year RC = 100 000 – 20 000 (charged depreciation)
in 3-d year RC = 100 000 – 20 000 – 16 000 and etc.
** sum of numbers of the term of useful economic life = 1+2+3+4+5=15
Total
20 000
8 192
6 667
rub
rub
40 000
35 000
30 000
25 000
20 000
15 000
10 000
5 000
0
2
20 000
12 800
20 000
5 year
Reducing Balance Method
Straight-Light Method
1
4 year
40 000
35 000
30 000
25 000
20 000
15 000
10 000
5 000
0
100 000
67 232
100 000
Sum of the years’ digits
1
2
3
4
5
year
Depreciation is not charged:









To objects of fixed assets received on the gift contract and gratuitous
during privatization
To objects of an external accomplishment
To acquired issuings (book, brochure etc.)
To objects of the forest facilities, road facilities
To productive cattle
To long-term plants, which have not yet reached their operation age
To exhibits of fauna in zoos and other similar establishments
In case of presence of objects for reconstruction and modernizations
To fixed assets which are not used in production because of manager’s
decision for more than three months
Account 02 “Depreciation of fixed assets” is used for the account of
depreciation amount.
Extra charges of depreciation are reflected by the following accounting
records:
Db 20 Kr 02 or Db 23 Kr 02 or Db 26 Kr 02 - under fixed assets of
industrial assignment
Db 29 Kr 02 - under fixed assets of non- industrial assignment