Which depreciations need to be considered in the annual financial statement?
July 6, 2024 | 50,00 EUR | answered by Jens Meier
Dear Tax Advisor,
I am Thomas Büchner and I run a medium-sized company in the automotive industry. Lately, I have been dealing with the topic of annual financial statements and have come across the topic of depreciation. Since I have little experience with accounting so far, I am unsure which depreciations need to be considered in the annual financial statements of my company.
The current state of my company is such that we own a fleet of 10 vehicles that we use for business operations. Additionally, we have various machines and equipment required for production. Since the acquisition costs for these assets were significant, I am unsure how and to what extent they need to be depreciated in order to prepare the annual financial statements correctly.
I am worried that I might be calculating depreciations incorrectly and that errors could occur in the annual financial statements as a result. Therefore, I would like to know from you which depreciations need to be considered in my annual financial statements and which depreciation methods are recommended. Are there any specific regulations or requirements that I need to adhere to? What are the effects of depreciations on the profit and loss statement of my company?
I thank you in advance for your support and look forward to your expert advice.
Sincerely,
Thomas Büchner
Dear Mr. Büchner,
Thank you for your inquiry regarding depreciations in the annual financial statements of your medium-sized company in the automotive industry. Depreciations are an important part of accounting and have direct impacts on the annual financial statements as well as the profit and loss statement of a company.
First and foremost, it is important to understand that depreciations represent the systematic allocation of the acquisition costs of an asset over its useful life. This means that the acquisition costs of a vehicle or a machine are not expensed immediately in the year of acquisition, but are spread out over the years. This is done to reflect the actual decrease in value of the asset in the annual financial statements.
In your case, with a fleet of 10 vehicles and various machines and equipment, you need to calculate depreciations correctly in order to prepare the annual financial statements accurately. Depreciations for vehicles are typically done over the useful life of the vehicle, which is usually between 4 and 6 years. For machines and equipment, the useful life depends on the specific type of asset.
There are various methods of depreciation, usually required to be done according to commercial law regulations (HGB) or tax regulations (EStG). The most common methods are straight-line depreciation, declining balance depreciation, and units of production depreciation. With straight-line depreciation, the decrease in value is evenly spread out over the useful life, with declining balance depreciation, the depreciation amount is higher in the early years and decreases over time, and with units of production depreciation, depreciation is based on actual usage.
It is important to choose the correct depreciation method and calculate depreciations accurately to avoid errors in the annual financial statements. Depreciations directly impact the profit and loss statement as they reduce profit and can influence the tax burden of your company.
I recommend contacting an experienced tax advisor who can assist you in calculating depreciations and preparing the annual financial statements. I am happy to assist you with any further questions and look forward to helping you with your accounting inquiries.
Best regards,
Jens Meier, Tax Advisor
