Business Accountants: Maximizing Asset Value: A Guide to Depreciation for Businesses


Depreciation plays a crucial role in managing the costs of assets over their useful life, allowing businesses to spread expenses and optimize financial planning. Here’s everything you need to know about depreciation:

Understanding Depreciation

Depreciation is a method used to recognize the decline in value of assets over time due to wear and tear or obsolescence. By claiming depreciation, businesses can deduct a portion of an asset’s cost each year on their income tax return.

Depreciable Assets

Assets eligible for depreciation must meet specific criteria:

  • Owned by the business and used for business purposes
  • Cost more than $1,000
  • Expected to last more than 12 months

Intellectual property assets like patents and copyrights are also depreciable.

Non-Depreciable Assets

Certain assets are not eligible for depreciation deductions, including:

  • Assets treated as non-depreciable with Inland Revenue
  • Trading stock
  • Residential buildings
  • Most intangible assets like goodwill

Calculating Depreciation

Depreciation is calculated annually over the useful life of the asset. Key factors in depreciation calculation include:

  • Asset’s value (cost or market value at acquisition)
  • Depreciation method (diminishing value or straight line)
  • Approved Inland Revenue depreciation rate

Recording Depreciation

Accurate record-keeping is essential for depreciation:

  • Maintain records of fixed assets, including purchase and sale documents
  • Track depreciation claimed and adjusted tax value (cost minus depreciation)
  • Keep records for at least seven years for compliance

By understanding depreciation and its implications, businesses can effectively manage asset costs, optimize tax deductions, and maintain financial transparency.

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