Depreciation

Fixed assets are assets that will have a value to the business over a long period, usually understood to be any time longer than a year.

They do usually lose their value:

• either with the passage of time (e.g. a lease),
• with use (e.g. a piece of machinery that wears out) or
• due to obsolescence (e.g. computers).

Therefore, they are written off over a number of years.

Depreciation is a book entry and no cash is involved.

The entry is:

• debit depreciation (thus reducing profit)
• credit the asset (thus reducing the value of the asset).

Fixed assets are grouped together in the Balance Sheet and one total is given for the net value of all of them.

Examples of fixed assets are:

• freehold property
• plant and machinery
• computers
• motor vehicles