Question

If a business builds a new manufacturing plant, is it possible to increase the rate of depreciation on the new facility and equipment? Does this need to be done equally each year?

Answer 1

Depreciation

Every business has to acquire fixed assets, which are retained for permanent use. However, such assets will not have the same value, as they become old. The value of such assets keeps declining due to decline in efficiency or due to wear and tear. Similarily, the impact of the technology may make assets obsolete. It is quiet obvious that the decline in the value of assets due to such factors is a loss to the business and is called depreciation.

Let us look at a case. ABC company purchase a machinery in the year 2000, due to continuous use the value of this asset decreases year after year. A new production method may render the machine outdated within ashort span, say two to three years as well.

In simple words, depreciation denotes fall in the market value of fixed assets due to various reasons.

Here in this case build a new plant, they should charge depreciation from purchased year onwards

(12 months depreciation for that year).

They need to provide depreciation to new facility and equipments indivually. So for plant separate depreciation and new equipments separate depreciation

They can't increase the rate of depreciation. They should follow the rate of depreciation which law the prescribes.

Methods for providing depreciation

• Fixed instalment method
• Diminishing balance method
• Annuity Method
• Revaluation method.

Each and every company can select thereown depreciation method. So sometimes depreciation will provide equally or sometimes not. Its depends upon on the business. But if the adopted one depreciation method they can't change it in the next year.