New to bookkeeping and just wondering if there's a standard rate a bookkeeper uses for depreciating plant and machinery? I've seen a few examples where 25% is used and others where 15% is used.
Are there any guidelines or is it down to personal preference?
There are various accepted norms depending upon what it is that is being depreciated.
The overriding factor though is that the asset is depreciated over its estimated useful economic life.
Also, although straight line tends to be the accepted norm there are also other acceptable options such as reducing balance and sum of digits.
What is it that you are looking to depreciate?
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
But computers appear to be different... page 91 of "Get Started in Sage 50: Teach Yourself" by Mac Bride, says:-
[when setting up nominal accounts in sage 50] "You may want to handle computer hardware separately from other office equipment (N/C 0030), as it can be written off in two years, rather than the standard 25% p.a. of other capital equipment. This will require two accounts, which might be named Computer Hardware and Computer Depreciation."
Has anyone seen any HMRC documentary evidence of this? I don't understand why this book says other capital equipment is standard 25%, but our accountant only uses 25% for motor vehicles.
Depreciation is not a tax concept so not really anything to do with HMRC.
As mentioned in my above reply, depreciation rates are subjective rather than formuaeic.
A Sage book will only tell you how a software vendor decided to approach things.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
The way I saw it when learning is you need a realistic end of life value and depreciate how you like as long as you are consistent. However I would try to keep it as close as possible to true values, computers depreciate quickly, two post hoists don't, we even have equipment that in fairness doesn't depreciate if you look at the market.
I would normally write of computer equipment over 3 years ie 33 1/3% straight line as it is likely the equipment will have little residual value after 3 years.
Regards
MarkS
-- Edited by MarkS on Friday 8th of June 2012 11:58:55 AM
I've never received anything for computers or related stuff over 2 yr old. I once bought a top of the range SCSI HDD for £800, the computer died before I had time to fit it. I offered the new HDD for sale, the most I was offered was £200. Just 25% of the price paid, massive depreciation within a few weeks. The same pattern with lots of computer equipment I've lost on.
Everything has a residual value, but nothing seems to depreciate as fast as computers. It's a shame really as they still work. Until recently moving house and having a forced clearout my garage was like a computer graveyard with all sorts of stuff going back over 30yrs.
To get back on topic, thinking about it again, you should use 33% as Mark said. I can't see a PC being worth much £££ in 3yrs, it might be worth a couple of quid, but I've yet to come across any definitive proof confiming the 50% rate, other than in the Sage book I quoted from earlier in the thread.
-- Edited by Wonnov Menny on Friday 8th of June 2012 11:26:51 AM
I'd try 50% as mentioned in my previous post. That way you can get a new one after 2 years. Yes, the computer will physically last longer but it will be quite outdated as things move fast in the world of computers & software. This is why it's advised in the book I mentioned to keep computer hardware separate from other equipment. Sounds ok to me.
I think that you are missing the point of depreciation Wonnov.
you are depreciating an asset down to a residual value over it's useful economic life to your business.
A computer might be outdated in a week but it is still used in your business three years later and you are allocated the diffeerence between the purchase price and the residual value on the basis of it's use in your business not it's current value to the outside world.
What you are doing is saying that during the time that you were using the computer you used x amount of it's worth and then that is allocated to the time periods to which is relates.
This relates directly to the fundamental accruals concept in that we must account for things as they are consumed by the business so relating the cost to the appropriate period.
Keeping to the accruals concept there is arguement with a computer to suggest that we would be better to employ reducing balance or sum of digits than straight line depreciation but common sense in that instance overrides the concept and I think almost all of us use straight line for depreciaion.
For a computer I agree with Mark that three years is a good depreciation schedule. Yes it's outdated after six months but that's no never mind , it's still useful to the business for three years and depreciation is about consumption of the resource by the business, not how fast the asset deteriorates in value to others which is only of concern when one comes to sell the asset.
Note that the above is not true where there is a going concern question over the business in which case an impairment would need to be recognised through the books immediately but that's a whole different scenario and not what we are talking about here which is the basic concept of depreciation.
All in all, computers 33.3%.
kind regards,
Shaun.
P.S. your hard drive screnario was a repair. The expectation is that the hard drive lasts for the life of the computer so one would not depreciate it seperately. It's replacement could therefore be argued to have been a repair and hence an expense of the business.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
p.s. on the computer graveyard thing you should see my loft. There's still a Tiko 386 dx machine up there with less hard drive than I've now got on 1 ram chip!
I still remember the thought pattern. do I go for 90mb or 130mb hard drive... Go 90mb, nobody could ever fill up 90mb!!! (yep, that was mb not gb).
Anyway, I still can't brig myself to throw out machines that cost £2k+ even though they're now useful only as paperweights.
Actually I cranked up the old Toshiba T120fb the other day. LCD screen, Twin flopies, no hard drive, 512k of Ram... A laptop and impromtu weihts machine all rolled into one.... Still works perfectly but sooooo sloooowwwly.
Sure that one must be a museum peice by now... Hard to believe that one was once £2700!!!
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Just for clarity (and Shaun may shoot me down in flames on this) but as i understand it, depreciation as such is not to work out the end of life value of an asset but to assign an value of economic useage, over the life of the asset.
So rather than seeing it as what the asset will be worth at the end of its economic life, look at it as how much money has been used up making use of the asset.
I heard some one remark once that if you buy something to own it, then is a liabilty. it only becomes an asset if you employ it someway.
Its not the financial value of the asset its the worth of the asset allocated on a systematic basis to the periods that such worth is consumed.
Sure we had this conversation a couple of years back and we were in agreement then as well.
Have another read of my post two down and you'll see that we are actually singing from the same hyme sheet on this.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
p.s. on the computer graveyard thing you should see my loft. There's still a Tiko 386 dx machine up there with less hard drive than I've now got on 1 ram chip!
I still remember the thought pattern. do I go for 90mb or 130mb hard drive... Go 90mb, nobody could ever fill up 90mb!!! (yep, that was mb not gb).
Anyway, I still can't brig myself to throw out machines that cost £2k+ even though they're now useful only as paperweights.
Actually I cranked up the old Toshiba T120fb the other day. LCD screen, Twin flopies, no hard drive, 512k of Ram... A laptop and impromtu weihts machine all rolled into one.... Still works perfectly but sooooo sloooowwwly.
Sure that one must be a museum peice by now... Hard to believe that one was once £2700!!!
Toshiba Laptop.. that takes me back.. I had a T1200, the luxury model with a 20mb HDD! Nice blueish LCD screen with slow refresh rate and fantastic solid keyboard, not like the rubbish today.
Also had (probably still around somewhere, don't remember tipping it) a Compaq III portable, a box shaped device with a removable keyboard and an orange coloured plasma screen that popped-up, still only had a 20mb drive and 5.25" floppy drive though. I'm sure I just threw out my last box of 5.25" floppies a month ago.
During my clearout I got rid of 2 Sinclair Spectrums (1 heavily modified and unrecognisable as a spectrum), 2 Amstrad CPC6128, 1 Amstrad PC1512 dual floppy with green screen, 1 Amstrad PC1640 with colour screen and 640K of RAM. About a dozen old printers including old dot matrix printers, inkjets and an HP Laserjet 4.
I've still got loads of ridiculously small capacity HDDs and a bunch of old inop laptops to get rid of. I have flash drives with more memory now!
I donated loads of RAM chips a few Intel 80286 & 386 processors, old motherboards and various PCI and AGP video cards to local school for kids to play around with.
I think I still have a Sam Coupe (spectrum based machine) somewhere in the loft, still in the box.
The good old days, how spoiled we were... Time passes so quickly.
Like you I hate getting rid of something that cost so much to buy at the time, but when we moved I had to decide, the wife or my old collection. Sometimes I wonder if I made the right decision
Like you I hate getting rid of something that cost so much to buy at the time, but when we moved I had to decide, the wife or my old collection. Sometimes I wonder if I made the right decision
Are you saying you wish you hadn't got rid of your wife? I personally stand by your decision to keep your collection of old tech, I would of done the same.
Actually, on that point. Wife number three did say "Either the surround sound goes or I do".... They only have themselves to blame! lol
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
