Equipment depreciation
Equipment depreciation is the accounting method for spreading an item's cost across the years it is expected to be useful, rather than expensing it all at purchase.
Equipment depreciation is the accounting method for spreading an item's cost across the years it is expected to be useful, rather than expensing it all at purchase.
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Also called: machine depreciation, asset depreciation.
Straight-line depreciation spreads the cost evenly across the useful life. It is the default because it is simple to calculate, simple to explain, and adequate for most equipment that wears out steadily.
Declining balance applies a fixed percentage to the remaining book value each year, so it front-loads the expense. It matches equipment that loses most of its value early — vehicles and computers being the usual examples.
Units of production depreciates by use rather than time: cost per hour, cycle or kilometre. This is the honest method for equipment whose life genuinely depends on how hard it is worked, and it is the one that needs real usage data to be anything other than a guess.
Depreciation is an accounting convention, not a market valuation. An item can be fully depreciated to zero on paper and still sell for a useful sum, or carry substantial book value while being effectively worthless because nobody wants that model any more.
For insurance, replacement budgeting and disposal decisions, treat book value as one input and current market prices as another.
Annual depreciation = (Purchase value − Salvage value) ÷ Useful life in years
A £12,000 machine with an expected £2,000 salvage value over 5 years depreciates £2,000 a year. After 3 years its book value is £6,000.
Organisations that never record purchase value and expected salvage cannot forecast replacement cost, so capital equipment gets replaced reactively — at whatever the price is on the day it dies.
Itefy holds purchase date, purchase value and expected salvage value per item, so value reporting and replacement planning work from the register rather than a separate sheet. Read more.
Your jurisdiction's tax rules usually set allowable lives by asset class, and your accountant will have the local table. Where you have discretion, base it on observed replacement intervals for that equipment in your own operation rather than the manufacturer's optimism.
No. Depreciation is a scheduled accounting allocation; market value moves on its own. The two rarely match, which is why fully depreciated equipment often still sells.
Asset lifecycle management is the practice of managing equipment deliberately at every stage — from specifying and buying it through use and maintenance to disposal.
DefinitionAn equipment condition report is a dated record of the physical and working state of a specific item, used to track deterioration and settle damage questions.
DefinitionAn equipment inventory is a complete, current list of the equipment an organisation owns, with enough detail per item to identify it, locate it and account for it.
DefinitionUtilisation rate is the share of available time that a piece of equipment is actually in use, expressed as a percentage.
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