Although nobody likes depreciation, how an organization uses it is critical. However, calculating depreciation can be a burdensome task. Therefore, tracking depreciation is very important for asset management and calculating the exact value of each asset. Although there are government regulations on depreciation, paying close attention to it is critical to Boards of organizations working hard to ensure that they look good on the books.
What is Depreciation?
As per the definition of Investopedia, “Depreciation is an accounting method of allocating the cost of a tangible or physical asset over its useful life or life expectancy. Depreciation represents how much of an asset’s value has been used up. Depreciating assets helps companies earn revenue from an asset while expensing a portion of its cost each year the asset is in use. If not taken into account, it can greatly affect profits.”
Every Asset has a value attached to it, in simple terms would be the current price it would fetch in the market. In some assets, this value keeps going down. This loss of value is Depreciation.
Depreciation calculation is also a major part of tracking assets. Integrating depreciation with balance sheet accounting will help track your assets with a better perspective. It is always important to keep a track of the depreciation of the value of your assets. This way you will always be making informed decisions when it comes to decisions on new buys of assets.
It would make sense to invest instead of keeping asset depreciation value a mystery, take more time to see how your assets are aging. If your accounting department isn’t already keeping an eye on depreciation, it’s time to make it part of their job.
Types of Depreciation
There are multiple methods used by organizations to
- Straight-Line
- Declining Balance
- Double Declining Balance
- Sum-of-the-Year’s-Digits
- Units of Production
What is the Useful Life of Asset?
Every Asset has what is known as “Useful life”. Typically, “Useful life” is an estimated average number of years an asset is considered useable before depreciation zeros its value.
This value is determined from general guidelines given by professional or industry organizations or any other credible references that one can attribute or quote reliably. Even individual organization may have their guidelines for doing so. It would be helpful to consider an asset’s current condition, quality of the asset, or usability of the asset when estimating its useful life. It would be good practice for an organization to have its own guidelines.
Tracking Depreciation for Accounting
Generally, Depreciation is part of an income statement or balance sheet. In the case of an income statement, it is shown under expenses and these typically account for the depreciation numbers for the accounting year. Whereas the balance sheet entries for depreciation are in absolute numbers or overall and not limited to the period.
Thus, if you are tracking depreciation on a balance sheet, it will help get a more accurate picture of your depreciating assets. You will not lose sight of the Net Worth. To do this what you need is a correct figure when it comes to the Assets and their values. Typically this figure may not be very accurate and there lies the problem.
Nevertheless, it definitely helps you identify patterns that would be harder to spot otherwise and you can proactively look at the possible causes and fix them beforehand.
Additionally, depreciation value will also identify if the maintenance expenses are worth it or for that matter if the asset itself is good to hold onto them. It would be a better idea to sell off such assets rather than add to the nuisance value.
Value Added Asset Management
Most of the time assets never get accounted for because the mechanism for tracking them is cumbersome. Typically the traditional methods of asset tracking are manual in nature and add a lot of process overheads to ensure that the records are correct. This is where it fails to keep up. Once assets go off the grid, they get lost sometimes stolen, and eventually forgotten. This leads to losses and additional expenses.
Quicsolv’s IoT-based Asset Management Software is the perfect solution that can come to your aid. It understands the need for accurately tracking assets. Quicsolv has created an asset management solution that makes tracking your assets simple.
Quicsolv’s solution is low maintenance and simple to implement. All you need to do is tag your assets with Genio tags. Once you have done that you can keep a real-time track of your assets. This makes your asset management easier and ensures that you can easily locate your assets whenever you need them.
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