What is depreciation of fixed assets

All fixed assets serve a long term, but still in the process of operation, even after major repairs, they need to be modernized and replaced by other means. That is, there is a depreciation of fixed assets for various reasons.

Depreciation of fixed assets is the loss of its value and consumer qualities in the procession of permanent work or prolonged inactivity. This process can be both natural, natural, and depend on storage conditions, rules of operation of fixed assets and rates of technical progress.

There are the following types of depreciation of fixed assets :

· Physical

· Moral (partial and complete)

· Social

· Ecological

So physical depreciation of fixed assets occurs when the cost of a fixed asset is lost due to damage to technical properties, for example animal disease, pipeline corrosion, destruction of a bridge or building during long-term operation and adverse environmental factors (precipitation, improper care of animals).

Physical deterioration is determined depending on the technical condition and service life. The degree of depreciation of fixed assets depends on:

· From the load during operation

· On the quality of equipment

· On the qualifications of employees serving funds

· From the equipment repair

· On how much the fixed asset itself is protected

Moral wear of fixed assets is divided into two types. When the cost of fixed assets is lost due to the fact that cheaper similar fixed assets appear for replacement, at which labor productivity sharply increases. Therefore, the use of obsolete fixed assets will inhibit production itself and cause its own backlog in the market. An example is the replacement of natural stones in tools with artificial ones with the same performance. These tools are cheaper in production, and the old tools are becoming obsolete economically and become inefficient, which means they are simply depreciating.

The second kind of moral depreciation is associated with the appearance of more productive similar products on the market. For example, continuous improvement of computers, laptops, replacement of a pager on a cell phone. New computers have more productive technical parameters and are economically more profitable.

At moral deterioration the basic means, without waiting for the established service life, quickly loses its value and significance due to the fact that it lags behind in its technical characteristics and economic efficiency from new, just appeared equipment.

With social depreciation, the equipment is lost cost due to the fact that there are more modern, comfortable and safe models.

Environmental deterioration occurs as a result of stricter requirements of environmental standards. This is especially pronounced in aviation, when it is required to constantly overhaul and change aircraft.

When revaluing fixed assets use the original and residual values to calculate the degree of depreciation of equipment in the enterprise. The degree of depreciation of fixed assets is determined by the ratio of accumulated depreciation to a certain date to the full value of the fixed asset on the balance sheet for the same date expressed in percent. The closer to zero this index, the less the degree of wear.

The degree of depreciation shows how much the equipment from the financial point of view was prepared for replacement, that is, it was amortized over the period of work. The depreciation fund at the enterprise serves to replace the worn out equipment with a new one, and in the conditions of technical progress and to expand the range of fixed assets.