# Advice 1: How to find the amount of wear

The means of labor consumed for the production of, can't last forever. They have a very nasty financial settlement worn out. The amountspent on the elimination of wear and tear, called depreciation. They should be included in the cost of finished goods in order to cover the costs of the enterprise.
Instruction
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Wear can be both physical (loss of properties, quality of materials, etc.) and moral (obsolescence of equipment, input of other technologies, changing requirements, etc.). Wear of fixed assets of the enterprise is inevitably not only for their continued use, but even with the inactivity, as in this case, there is the influence of external factors such as air, humidity, etc. There is a third type of depreciation is economic, which appears due to the impact of external political, economic and other factors.
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The calculation of the amount of wear is to determine depreciation for the period of service fixed assets. Depreciation is the cost of restoring the working condition of fixed assets, elimination of wear and tear. These contributions are budgeted in the cost of finished products to cover the cost of restoration of fixed assets. We are talking about physical deterioration, since it is disposable.
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There are several methods of calculating the amount of wear, but of them there are two basic linear and nonlinear. According to the linear method the annual amount of depreciation is determined on the basis of original cost of fixed assets taking into account depreciation rates and useful lives, which is determined by the enterprise independently on the Classification of fixed assets.
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Formula straight line depreciation method to calculate the annual amount of wear and tear:SI = (PS*)/100,where SI is the amount of wear and tear, PS – initial cost of fixed assets or one of their objects, is the depreciation rate.
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Nonlinear method, in turn, has two subspecies: this declining balance method and deduct this cost. According to the method of declining balance, the amount of wear is determined based on the residual value of fixed assets at the beginning of the reporting period (year) and the depreciation rate:SI = Cost*(*)/100,where Cost – residual value of fixed assets at the beginning of the reporting period, the acceleration factor, which is adopted by each organization, but can not be more than 3.
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The method of writing off of cost on the sum of the numbers of years of useful use of fixed assets is to determine the amount of depreciation at historical cost and the ratio of the number of remaining years and the total number of years of service are:SI = PS*Tot/(T*(T + 1)/2), gdest – the number of years remaining until the end of service life, T is the total number of years of useful life of fixed assets.
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Most of the enterprises, namely about 70%, prefer to use the linear method in their calculations. It attracts with its simplicity and minimum of the input data, which are always in the balance sheet of the company.

# Advice 2: How to calculate depreciation of equipment

Under the wear and tear of the equipment mean the loss of its value and performance. It can occur due to many reasons: the aging of equipment, loss of competitiveness etc At the moment, using the latest technology, it is possible to achieve success in the fight against wear and tear, thus prolonged the service life of equipment, but still, this task remains highly relevant.
Instruction
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Describe and classify equipment. This work is the most difficult and time-consuming. It takes time and effort, as due to the fact that to use an existing database, such as Ledger account of fixed assets is difficult, because they were made completely different principles, i.e. there is no hierarchy of descriptions, there is no binding technical places, etc.
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Inspect the equipment "live", although this leads to increased time costs. To do this, since the reconstruction and modernization changed its technological scheme, device, etc. Such changes do not always fit into technical documentation and the passport of the equipment, or they are lost. Thus, in practice, it is not enough to only use technical documentation and passports of the equipment. The only way to solve this problem is to combine time-description of equipment and its repair.
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Define a hierarchy of equipment, i.e. divide it into main, auxiliary, etc. The upper tier must correspond to the technological objects (elements of a technological chain), which carry out production. This is followed by separate units of equipmentand then components and assemblies, of which they are composed.
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Define physical deterioration of the equipment: describe and categorize the equipment of the technological chain of the plant; develop key indicators that characterize the state of the productive capabilities of the units of equipment; determine the weight required for calculation of the integral indicator of physical deterioration of units of equipment (determined by expert assessment); determine the current values of the main indicators and compare them with reference values; and hold a depreciating groups of similar equipment (equipmentwhich produce the same product or technological operation); calculate the wear process chain, where on the basis of data about the actual wear on groups of equipment.
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It should be noted that the method still has several disadvantages: high complexity of implementation and support to date database of equipment, normal operation of the system for tracking physical wear on these principles is virtually impossible without information systems, the possible erroneous conclusions when determining the physical condition of different groups of equipment.

# Advice 3: What is the difference between depreciation and amortization

Concepts of depreciation and amortization have a lot in common and are associated with the depreciation of production assets. Meanwhile, they are not identical and they should be distinguished from each other.

## The concept of depreciation and amortization

A significant proportion of company costs associated with the cost of major resources (equipment, premises). Their peculiarity is that they are not consumed in one production cycle as raw materials, and last for years. But at the same time are subject to wear.

Wear is a process of loss of the object, its characteristics, resulting in the lowering of cost and depreciation. These could be fixed assets like equipment, buildings, vehicles, etc.

In economic terms, there are physical and moral deterioration. Physical deterioration is associated with the wear of the asset with the loss of its properties due to aging during the use of this property. It is calculated as the ratio of the time of operation of the asset to the regulatory deadline. Obsolescence occurs as a result of partial loss of the asset of its value by newer more advanced technologies or under the influence of other factors.

Depreciation is a process of partial transfer of the assets as depreciation on the cost of production. It is carried out with the use of depreciation deductions.

There are so-called the circuit of fixed assets. It includes three stages: depreciation, amortization and compensation. Depreciation and amortization are carried out in the process of using fixed assets in production, compensation - as they are created and recovering.

## Comparison of depreciation and impairment

Based on the comparison of the concepts of depreciation and impairment are the following differences:

- at the time of occurrence of the amortization accrued as a result of depreciation, i.e. it is its consequence;

depreciation is the monetary equivalent of depreciation of fixed assets, whereas depreciation has no cash value;

- depreciation does not necessarily depend on the level of wear on the object can be fully depreciated value, not subjected to full wear and tear and subject to future use; happen the reverse situation - when the equipment fails before complete write-off its cost;

- the company can independently determine the depreciation rate;

- in accounting, the term depreciation is not used, only the depreciation; depreciation - concept of financial analysis;

the term depreciation is enshrined in law, whereas the legal definition of wear is absent;

- wear and tear – decrease in value of fixed assets and the rate of equipment obsolescence and depreciation – transfer to the cost of production, which allows to restore the Fund's fixed assets.

# Advice 4: The wear ratio and other indicators of the state of fixed assets

The state of fixed assets to reflect their technical suitability for further exploitation. Depreciation of fixed funds often need urgent or major repair, modernization may cause interruptions, delays in the production process and defective products. Therefore, it is important for businesses to monitor their condition with the help of special calculation indicators.
The main indicators used for assessing the status of fixed assets, are the coefficient of wear and the coefficient of validity.

## The depreciation factor

Wear is the loss of basic means of their physical, moral and economic properties. Wear also depends on the depreciation groups and codes of the Russian classifier of fixed assets (OKOF). Depreciation is the value expression of the degree of wear of the tools. They are accrued monthly during the calendar year depending on the useful life of fixed assets and included in cost of finished goods, the executed works or the rendered services. This process of return on investment in fixed assets, financial resources of the enterprise.

The wear ratio is calculated by dividing the accumulated amount of depreciation (amortization) at the initial or restorative (revaluation) value of fixed assets. The resulting value can be multiplied by 100%, then the wear will be expressed as a percentage relative to the total number of fixed assets, conventionally taken as 100%. This ratio shows what proportion of fixed assets depreciation and is calculated at the beginning and end of the calendar year.

## The coefficient of validity

The ratio of the shelf life of fixed assets is an indicator opposite to the coefficient of wear. It is calculated as the ratio of the initial (recovery) value to the accumulated amount of depreciation (amortization). The result can also be multiplied by 100%. This shows the proportion of the unworn core funds. The indicator is calculated at the beginning and end of the reporting year.

The coefficient of validity can be estimated by deduction of units or 100% of the value of the coefficient of wear. If you add up the coefficients of wear and shelf life, the result is equal to 1 or 100%. For example, the wear rate is equal to 0.3 or 30%, respectively, the coefficient of validity will amount to 0.7 or 70%. The coefficient of validity must exceed the depreciation rate and the percentage to be more than half of the total value of fixed assets.

The enterprise should monitor the degree of deterioration and the shelf life of its key assets, to timely update and upgrade their. Fixed assets in good condition is key for the smooth production process, reduce the cost of finished products and increase profits.
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