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Use these two methods to calculate asset depreciation

by , 09 July 2014
All assets get old. As you use them they slowly wear out and their value drops. This is called depreciation and it's every accountant's worst nightmare. But it doesn't have to be yours.

You see, as your assets lose their value, you can reduce the amount of tax you pay on them. This is SARS' helpful little concession to make up for the fact your expensive company car or computer is slowly becoming worthless.

And, there are two easy methods you can use to work out the depreciation on your assets...

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Asset depreciation happens at a rate of 15% each year 

 
Asset depreciation happens at a fixed rate of 15% a year. So, for example, if your company car is worth R150 000 this year, next year it'll be worth 15% less.
 
With that in mind, let's look at the two methods you can use to calculate depreciation:
 
Method one: Straight line 
When you work out straight line depreciations, you write off the depreciation amount in annual instalments. 
 
This means that each year you'll deduct the 15% depreciation from your company's net assets. The Practical Tax Loose Leaf Service refers to this depreciation as an 'annual instalment'. 
 
You can then claim this annual instalment as your wear and tear allowance on your company's income tax.
 
What about the second method?
 

Method two: Reducing the balance 

 
When you reduce the balance, you simply deduct the 15% depreciation from the book value of the asset. The book value is what you paid for the asset.
 
You must do this each year until the assets' book value comes to nil.
 
It's that simple to work out the depreciation of your asset and get a little money back in tax deductions because of it.
 
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