Decide whether to lease or buy assets
Understanding depreciation of assets
The value of your tangible or physical assets - such as vehicles, machinery and equipment - will fall as they are used and eventually wear out. This is depreciation and is used in your business accounts to write off the value of the assets you have bought over time.
Depreciation means the cost of the asset is spread, so it is written off against the profits of several years rather than just the year of purchase. Depreciation is not allowable for tax. Instead you may be able to claim the cost of some assets against taxable income as capital allowances.
To work out depreciation you need to know:
- the date you started using the asset
- the asset's estimated useful life
- the asset's initial cost
- any possible value it may have at the end of its use - eg to be reused or reconditioned, or as scrap
- any costs that may be related to disposal
Business Accounting Basics provide advice on how to calculate depreciation.
For intangible assets ie assets that don't have a physical presence, such as your brand or know-how, you should seek professional advice. See business assets.