Depreciation is generally referred to as the monetary value of wear and tear that occurs in capital goods transferred from previous years when creating goods and services of production activities.
The appearance of wear and tear and obsolescence in fixed assets over time is an inevitable situation. Depreciation, that is, the wear-out share, is the share of valuable assets that companies receive (real estate, complementary parts, machinery, etc.) is shown as an expense share in case of obsolescence or wear and tear. The cost of the asset is deducted from tax as a business expense. In order for a fixed asset to obtain a depreciation value, it must first be used for more than one year, while fixed assets cannot be recorded as depreciation by companies during the year they were received.
In order for a fixed asset to obtain a depreciation value, it must comply with the separation conditions. The depreciation separation conditions can be considered as follows;
- The fact that the item has been available in the business for more than one year.
- The asset is included in the inventory on the valuation day and is suitable for use.
- The value of the economic asset of the goods is above the depreciation limit determined for that year.
- The fixed asset has a structure that can lose its value over time, wear out and deform.
Assets that meet these conditions have a depreciation value and can be written off as expenses by companies. Depreciation calculation methods can be calculated in several different ways, some of which are divided into normal depreciation and decreasing balances depreciation methods.
- In the normal depreciation method, the amount of depreciation to be allocated is equal every year. At the end of the depreciation period, its amount becomes equal to the cost value of the economic asset. Since the cost of a fixed asset is distributed Decently over each period taking into account its useful life, the intended use of the asset may be ignored. Let's imagine that a business buys a fixture worth TL 20,000 with an economic life of 5 years;
Depreciation ratio: 1/ Economic Life
1/5 : 20% depreciation share 20,000 x 20% = TL 4000 annual depreciation share
- Decreasing balances depreciation method, accelerated the depreciation method is also called . In the decreasing balances method, the annual depreciation amount is calculated on the remaining value by deducting the accumulated depreciation allocated in previous years from the cost value of the asset. In this procedure, the depreciation rate is twice the normal depreciation rate, not exceeding 50%. The depreciation period is calculated according to the normal depreciation period, and the balance transferred to the last year of this period is completely destroyed in that year. This method cannot be applied to intangible assets.
Suppose a business acquires a fixture with a value of 20,000 TL and an economic life of 5 years : the value of the first year; 20.000 /5x2 = 8.000 TL
Second year value : (20.000-8.000) / 5x2 = 4.800 TL There is a cycle in which the amount of expenses decreases based on the previous one every year.
Extraordinary Depreciation Method : Natural disasters such as earthquakes, fires and floods, as well as unusual events that occur in a similar way, this method is applied in cases where the valuation of fixed assets is partially or completely lost. When such a situation is encountered, an application is made to the relevant administration to amortize a certain part of the assets.
Revaluation Practices
Revaluation involves the valuation of depreciable economic assets and their depreciation in current currency only, in parallel with the decrease in the monetary value of fixed assets it is called the increase in market value. Revaluation is the determination of the fair values of the assets owned by the companies and their depreciation at current market prices in accordance with the provisions, and the amount of the increase in value is shown from a special fund account in the liability of the balance sheet. Revaluation is applied by multiplying the depreciation of tangible fixed assets and their related depreciation by the ratio for the year in which the revaluation will be made.
Changing inflation provides an environment in which the actual values of assets that have been on balance sheets for more than a year are not seen. A re-evaluation is also being carried out in order to eliminate the negativities in question.
Accurate determination of operating costs and revenues in an inflation environment, depreciation, separation of property, plant and equipment by cost value affects production cost and income for the period. Thus, by separating the depreciation from the high value as a result of the revaluation, the correct determination of costs and revenues will be ensured. Depreciation is an element of the cost of production.
The state publishes a single valuation ratio for one year. However, monthly, 3-month, 6-month depreciation calculations can be made and partial accounting can be made in the relevant period without disclosing the year-end valuation ratio. If a fixed asset valuation was made for the first 5-6 month period without waiting for the end of the year, since it is actually the only valuation rate announced by the state during the year, the valuation rate made without disclosing this rate can be considered as a temporary value.
For example;
Let the annual depreciation value of the fixed asset A we have be 1200TL.
Let the fixed asset's 6-month depreciation share= 600TL and be accounted for by making a valuation with an increase of 0.79 coefficient in the Dec.
1200*1.79=2148TL (annual)/ 2 = 1074 TL (6 months)
Let the revaluation increase announced at the end of the year be 0.98. If accounting could not be made in the interim period, the annual depreciation of the fixed asset would be as follows;
1200*1.98=2376TL (annual)
TL2376-1074=TL1302 will be the remaining depreciation amount at the end of the year.