UK depreciation rates on varying types of equipment ?

[Zoe Burgess]

Hi,

Can anyone help with what the depreciation rate should be when there is a company with several different types of equipment? We have sound, lighting, staging and power equipment in stock all which will depreciate at differing rates. Some bits will hold it's value for years while only a handful of bits will depreciate faster. What should the over all depreciation rate be for this? I have looked on the internet and can find nothing to give me any clues other then wildly different general amounts ranging from 50% down to 15%.

Anyone?

Thanks,

Zoe

 

[Bad Medicine]

Not really much help here but maybe it'll spark something and you'll find out more ...

In the U.S. (which is why it isn't much help) two ways people usually do depreciation on equipment are GAAP and MACRS. GAAP basically says to try to be realistic about how long the equipment will last, and MACRS is the IRS's scheme for tax purposes which has clearly defined periods of time. Many small businesses just use MACRS since they have to use it anyway, but large companies that have a responsibility to report realistic numbers to their shareholders would use GAAP and MACRS, essentially keeping two sets of books.

 

[DerrickWD]

It depends on which depreciation method you use, as Bad Medicine says, and the particular composition of your equipment accounts. It is more straightforward to depreciate each piece of equipment separately, with the depreciation rate depending on each equipment's useful life.

To depreciate all equipment at once is possible. If using the straight line method, what you would need to do is find an average useful life for all of your equipment. If you have 3 pieces of equipment, A B and C, and A has a life of 10 years, B has a life of 3 years, and C has a life of 1, then the average useful life would be 4.67 years ((10+3+1)/3). This amounts to a depreciation rate of about 21% per year. (1 / 4.67)

 

[Fidget]

Hi,

Can anyone help with what the depreciation rate should be when there is a company with several different types of equipment? We have sound, lighting, staging and power equipment in stock all which will depreciate at differing rates. Some bits will hold it's value for years while only a handful of bits will depreciate faster. What should the over all depreciation rate be for this? I have looked on the internet and can find nothing to give me any clues other then wildly different general amounts ranging from 50% down to 15%.

Anyone?

Thanks,

Zoe

There isn't a blanket rate to use. Setting the level of depreciation is a matter of judgement. For this type of asset I would recommend straightline depreciation, and best you can do really is group the equipment into similar categories - which you've done with sound, lighting etc, then come up with a reasonable number of years that those categories of equipment are expected to last. Then the value of the equipment category divided by expected years of usage = depreciation charge each year.

At the end of each financial year, the assumptions on how long each category of equipment was originally expected to last should be reviewed to see if that is still the expectation, and if not, then adjusted as necessary.