All the activities of an enterprise completely depend on the resources or funds at its disposal, which, as you know, are not unlimited. The organization’s fund includes cash, equipment used in the production process, and human resources. Over time, equipment, for example, physically wears out and becomes obsolete, respectively, its value decreases. In this case, we should talk about such a thing as depreciation of fixed assets or resources, implying a gradual loss by some capital good of its original value. Accounting for depreciation of production resources is an important component of accounting for fixed assets of an enterprise. Its jurisdiction is the responsibility of accountants, employees of economic and financial departments, company managers.
Types of depreciation of fixed assets
Physical deterioration implies the gradual wear of fixed assets in the process of their constant operation during the manufacture of products manufactured by the enterprise. Depreciation of fixed assets or enterprise resources in their use is a natural and economically justified phenomenon. However, the accelerated depreciation of resources, for example, of machines, is facilitated by their poor repair service, misuse, storage in rooms unsuitable for such purposes. In this case, it is a question of physical deterioration of the second kind.
The amount of physical depreciation of enterprise resources depends on:
- their qualities;
- the degree of their loading in the production process;
- quality of care for these resources;
- features of the production process;
- professionalism of employees working with resources.
The reason for the decline in the value of material goods may be not only their loss of consumer qualities over time, but also their moral depreciation. Such depreciation of fixed assets may be associated with the appearance of similar, but cheaper and more modern means of labor.
An example of obsolescence is the typewriters used several decades ago for writing newspaper articles and literary works. Today, it is unlikely to find at least one journalist or writer using such a device. Replaced by more convenient and feature-rich computers.
At modern enterprises for the production of certain products, part of the human responsibilities is performed by specialized equipment. The depreciation of fixed assets is always associated with the development of technological progress. The use of new modern equipment has a positive effect on the overall efficiency of production, allows you to produce the maximum number of products in a shorter period of time.
As already mentioned, the production costs associated with the physical and moral obsolescence of the enterprise’s capital resources are managed by specialists who manage finances. We cannot but mention such a concept as the depreciation coefficient of fixed assets, which shows the extent to which the replacement of obsolete resources with new, more efficient ones can be financed in the future. A similar ratio is calculated based on the balance sheet.
Depreciation is the process of transferring the value of the main resources of production as they lose their original cost and value to the value of products produced with their help. From the point of view of accounting, the depreciation rate of resources (funds) is the ratio of the depreciation to the initial cost of these resources. It is believed that the company operates with low efficiency and a high level of costs if the wear rate of its resources is more than 50%. Such production may well be considered unprofitable.