Understanding the Importance of Depreciation in Business: A Comprehensive Guide

Depreciation is a critical concept that reflects the decline in value of business assets over time. While often overlooked, it shouldn’t be underestimated. Depreciation accounting allows you to grasp the actual cost of conducting business, consider wear and tear as an expense, potentially reduce your tax obligations, and assess the value of your business accurately.

Let’s delve into why depreciation holds such significance:

It incurs costs: Depreciation accounting involves determining the annual decrease in value of your assets, enabling you to record it as a loss and deduct it from your revenue.

It can lower your tax bill: As depreciation is considered a legitimate business expense, it has the potential to reduce your tax liability. Hence, understanding the extent of value reduction each year is crucial.

It impacts your business value: When significant business assets lose value, the overall worth of your business diminishes. Failing to accurately track depreciation may lead to overestimating your business’s value, which can hinder your ability to secure financing.

The Intricacies of Depreciation

Typically, only long-term or fixed assets are subject to depreciation, while consumable products are not included.

Estimating the lifespan of an asset and selecting a suitable depreciation method to calculate its value decline over time are essential steps.

Common methods include:

Straight line depreciation: This method entails consistent annual depreciation of the asset until it reaches zero value.

Diminishing value depreciation: Under this approach, the asset experiences a higher percentage of depreciation during the initial years, followed by a slower depreciation rate.

Units of production depreciation: Instead of time-based depreciation, this method calculates the asset’s lifespan based on its usage or output. For instance, a business vehicle’s depreciation might be measured in kilometers traveled rather than its age.

Implementing Depreciation Accounting in Your Business

Calculating depreciation may initially appear daunting, particularly for new businesses. However, given its potential to reduce costs and accurately assess your business’s value, it’s worth investing the effort.

If you require guidance on getting started, our expert accounting team is available to provide the necessary support. Contact us now for assistance.


Your Outside Team



 Need a bit of assistance with your
business? Contact an Outside Accounting team member today and learn more about
our fixed fees. You won’t regret it.

Aside from business consultation, we are business accountants Wellington who
offer accountingbookkeeping, payroll services designed to
help you achieve greater financial success.

You can click here to speak to a businessaccounting and bookkeeping firm. We will give you a call to know more
about your needs. We will explain to you how we can improve your business.




Wellington Accountants | 

Business Accountants | 

Construction Accountants 

Property Accountants 

Contractor Accountants 

Hospitality Accountants |

Property Developer Accountants | Accountants Wellington | Wellington Accountant | Restaurant Accountants | Cafe Accountants | Business Consultation | Business Adviser

AddressLevel 2, 182 Vivian Street,
Te Aro, Wellington 6011, New Zealand 

Mail: PO Box 24-457, Wellington 6142

Phone04 889 2975

New Zealand Accounting, Bookkeeping & Property Business Consultancy Services | Wellington & Lower Hutt Xero Property Accountants Business coach business consultation business adviser

Business Accountants: Exploring Business Structures: How to Choose the Right One for Your Venture

Embarking on the journey of entrepreneurship is exhilarating, but establishing the right business structure can be a daunting task. Whether you’re a solo entrepreneur or part of a larger team, understanding the different business structures and making the right choice is crucial for your long-term success. This guide aims to demystify the process and help you navigate the intricate world of business entities.

Read More »
New Zealand Accounting, Bookkeeping & Property Business Consultancy Services | Wellington & Lower Hutt Xero Property Accountants Business coach business consultation business adviser

Business Accountants: Optimising Your Business for Recession Resilience: Strategies for 2024

In the face of economic challenges, understanding how to recession-proof your business becomes paramount. A recession, marked by prolonged weak or negative growth in real GDP and heightened unemployment, demands strategic planning to weather the storm and emerge stronger on the other side. To fortify your business for the uncertainties ahead, consider the following comprehensive guide.

Read More »