Fixed Assets, Depreciation: what does it all mean? This post covers the Depreciation Basics
“Fixed Assets are are an asset that the business owns that is expected to be used by the business for more than a year.”
“Depreciation is a method of allocating the cost of an asset over its useful life”
So for example: Sally runs a florist business and has just purchased a new van for deliveries. The Van cost $30,000. Now most vehicles last for at least 10 years. So rather than claiming the full cost in the first year and getting the benefits for another 9 years, the vehicle is depreciated over time allocating a portion of the cost to expenses each year while reducing the value of the car.
All assets have a different rate of depreciation and the IRD has a depreciation rate finder to give you an idea of what rate of depreciation you could use.
There are two ways that you can calculate depreciation. They are Diminishing Value and Straight Line Basis. We will look into these methods in our next post.
So what assets need to be depreciated?
All assets purchased by the business that cost over $500 (excluding GST) will need to be added to the fixed asset register and depreciated each year that the business has the asset in its possession. Land and buildings are not able to be depreciated, however chattels can be listed and depreciated separately.
Still Feeling unsure about your responsibilities??
If you are feeling unsure about your responsibilities around Depreciation of Fixed Assets in your business it might be time to look at getting some professional advice. We can help make sure you have all your assets sorted and are claiming the correct amount of depreciation each year. Get in touch to see how we can help.
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