Forum Message

Monthly Depreciation

I prefer to record the depreciation of assets on a monthly basis rather than on an annual one.

Assuming assets depreciate over four years. That would be 25% per annum or 2.1% per month.

Is it a valid approach to just allocate 2.1% of whatever the current value of the of the assets are to the "depreciation account"? I realise that in theory if no new assets were ever bought the value of the assets would never get to zero using this approach. But that could be avoided by having say an arbitrary minimum depreciation of say £10 per month.

How strict are the rules on recording depreciation and how much leeway is their for individuals to decide how they want to depreciate assets?


Posted by Ian M Butterfield on Jan 8, 2011 12:32 PM GMT

Perhaps I ought to explain why I'm looking to use this type of approach. As a photographer I'm regularly buying new 'fixed assets' - additional camera kit, lenses or studio kit, or IT equipment for image processing etc. It is not unusual to be adding 6 -8 new fixed assets all at different times throughout the year - and this year as I open a new studio it will increase. Calculating depreciation on an asset by asset basis is very complex and I need to find a simple solution.


Posted by Ian M Butterfield on Jan 8, 2011 12:51 PM GMT

Hi Ian,

You can choose any depreciation method that you think is appropriate. I'm not an export on these methods - you should ask your accountant what is the best depreciation calculation method in your case.

Note that depreciation charges are not an allowable expense for tax purposes. Instead, there is a 'capital allowance' which has specific rules for how much can be charged against assets. When completing your tax return you will need to exclude the depreciation from your profit calculation and include the capital allowance instead. For this reason, many people choose a depreciation method which matches the capital allowance.

Regards,


Posted by Mark McLaren (Solar Accounts) on Jan 8, 2011 4:05 PM GMT