What impact does depreciation have on my results in the income statement?
September 6, 2022 | 40,00 EUR | answered by Jonas Kessler
Dear Mr. Tax Advisor,
I am Wilhelm Schlosser and I run a medium-sized company in the metal processing industry. In my profit and loss statement, I have noticed that depreciation has a significant impact on my results. I am unsure of how exactly these depreciations affect my business and what long-term effects they could have.
Currently, I am depreciating my machinery and equipment as they lose value over the years. However, I am uncertain if I am calculating the depreciations correctly and if I may have incorrect information in my profit and loss statement. I am concerned about how depreciations affect my results and if they could potentially influence my business in the long run.
Therefore, my question to you as an expert is: What specific impacts do depreciations have on my results in the profit and loss statement? How do depreciations affect my business in the long term and what possible solutions are there to ensure that depreciations are calculated correctly and do not negatively impact my results? I would greatly appreciate your expert advice and support on this matter.
Thank you in advance.
Sincerely,
Wilhelm Schlosser
Dear Mr. Schlosser,
Thank you for your question regarding depreciation in your profit and loss statement. As a tax advisor specializing in this topic, I am happy to assist you and provide you with further insights into the effects of depreciation on your company.
First and foremost, it is important to understand that depreciation has a direct impact on your results in the profit and loss statement. Depreciation is a cost that serves to capture the decrease in value of fixed assets such as machinery and equipment over their useful life. Depreciation reduces your company's profit, as the acquisition costs of the assets are spread over time.
In the long run, depreciation can lead to your company having a more realistic representation of its financial situation. By taking into account the actual decrease in value of your assets, you can make a more accurate assessment of how profitable your company truly is. Furthermore, depreciation also has tax implications, as they can be claimed as operating expenses and thus reduce your tax burden.
To ensure that depreciation is calculated correctly and does not negatively impact your results, it is important to accurately determine the useful life and residual value of your fixed assets. The correct depreciation method (straight-line, declining balance, etc.) also plays a role, as it can have an impact on your results. It is advisable to regularly review whether the depreciation is still appropriate and adjust it if necessary.
If you are unsure about calculating depreciation correctly, I recommend seeking assistance from an experienced tax advisor who can help you with the accurate recording and calculation of depreciation. Careful planning and monitoring of depreciation can help ensure that your company remains successful in the long term and financially healthy.
I hope this information is helpful to you and I am available for any further questions you may have. Thank you for your trust, and I look forward to assisting you with this important topic.
Sincerely,
Jonas Kessler, Tax Advisor
