Depreciation of assets: straight-line vs. accelerated depreciation

Depreciation charges the wear and tear of assets to costs gradually, over several years. The choice between straight-line and accelerated depreciation affects how quickly the acquisition of an asset is reflected in your tax base.

Why we depreciate assets

Fixed assets serve a company for several years, so their acquisition cost is not expensed all at once but gradually through depreciation. This spreads the cost over the period in which the asset actually brings a benefit.

Depreciation thus ensures that the profit or loss is not artificially understated in the year of purchase and, conversely, overstated in the following years. It is a fair allocation of the cost over time that reflects its substance.

Straight-line depreciation

With straight-line depreciation, the cost of the asset is divided into equal annual amounts over the depreciation period. It is predictable and easy to plan for, because the expense is roughly the same every year.

• an even spread of costs over time
• simple planning of the profit or loss
• clarity across several periods

Accelerated depreciation

Accelerated depreciation allows you to write off a larger part of the cost in the first years and a smaller part later. It is suitable when you want to reduce the tax base more at the start, for example for assets that lose value quickly.

This method is particularly attractive for companies that expect higher profits in the first years after an investment and want to optimise their tax burden right from the start.

Which method to choose

The decision depends on your intentions and on how you expect the business to perform. If you are planning higher profits in the first years, accelerated depreciation may be more advantageous. If performance is stable, the straight-line method is often sufficient.

• the expected development of profits in the coming years
• how quickly the asset loses value
• the company’s overall tax and financial strategy

Accounting vs. tax depreciation

Distinguish between accounting depreciation, which reflects the actual wear and tear of the asset, and tax depreciation under the statutory rules. These two views do not have to match, and the difference between them is reflected in the tax base.

Check the classification of assets into depreciation groups and the specific depreciation periods that apply in the current period, as these may change. Setting things up correctly from the start will save you complications in the years that follow.

When depreciation begins

Depreciation can only begin once the asset has been put into use, that is, when the asset is ready and able to perform its function. The purchase alone does not mark the start of depreciation.

It is therefore important to determine the moment the asset is put into use correctly and to have it supported by a document. For assets that require assembly or installation, this moment may differ from the date of purchase.

Suspending depreciation and disposing of assets

Under certain conditions, depreciation can be suspended, for example when you are temporarily not using the asset. Later you resume where you left off, which allows more flexible planning of the tax base.

When an asset is disposed of, whether by sale or by scrapping, its residual value must be accounted for correctly. Check the consequences of the disposal for the tax base for your specific situation and period.

• putting the asset into use as the start of depreciation
• the option of suspending tax depreciation
• correct accounting when an asset is disposed of

Depreciation as a planning tool

Depreciation of assets is not just a technical obligation but also a tool that affects the profit or loss and the tax base in individual years. A well-considered choice of depreciation method is therefore part of the company’s financial planning.

If you expect fluctuations in profits, it is worth considering in advance how depreciation will be reflected in future years. For larger investments, it is sensible to discuss the approach with an accountant so that you make the best use of the options available.

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Frequently asked questions

Can I switch from the straight-line to the accelerated method during depreciation?

The depreciation method is determined when the asset is put into use and, as a rule, does not change during the depreciation period. That is why it is important to think the choice through at the outset in line with the company’s tax strategy.

What is the difference between accounting and tax depreciation?

Accounting depreciation expresses the actual wear and tear of the asset, and the company sets it according to the real period of use. Tax depreciation follows the statutory rules and depreciation groups. The difference between them is reflected in the tax base.