What happens when an asset is written off

Depreciation / depreciation

Updated on by Michael Mühl

An investment in assets may not be immediately claimed in full to reduce tax. Instead, the annual loss in value of the asset is deducted from tax as a cost over the useful life. This reduction in value, which is to be calculated under tax law, is called depreciation or depreciation for wear and tear (AfA). The following 10 questions and answers clarify how the depreciation is determined and what legal requirements exist.

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The most important questions about depreciation

  • 01.
    What is a depreciation?

    Depreciation is a scheduled or unscheduled loss in value of entrepreneurial assets. This can affect both current assets and fixed assets. The decrease in value can result from various causes. The recording of a depreciation in the balance sheet reflects the loss and reduces the value of the corresponding assets. In general, depreciation is an expense and reduces profit. The opposite of a write-down is a write-up. This may be necessary to compensate if the depreciation was too high in the previous year.

  • 02.
    What are the possible causes of a write-off?

    There are various reasons for a depreciation:

    • Temporal causes: due to aging or wear and tear
    • Usage-related causes: through wear and tear
    • Economic causes: change in demand or technical progress
    • Legal causes: expiry of property rights or expiry of usage rights
    • Weather-related causes: rust formation from rain, damage from frost
  • 03.
    When do you post scheduled and when do you post unscheduled depreciation?

    In the case of scheduled depreciation, assets are reduced proportionally in the balance sheet over a longer period of time and an expense is not posted directly in the year of acquisition. This is based on the corresponding depreciation tables. Thus, the value of the object will decrease in the following financial years in line with its useful life. If, for example, a machine breaks down during the planned depreciation period, an unscheduled depreciation must be made because the asset has suddenly fallen permanently.

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  • 04.
    What are the depreciation methods?

    Linear depreciation

    The amount of depreciation is evenly distributed over the useful life. So you write off the same amount every year.

    Declining balance depreciation

    Since the value of an object of use falls more quickly in the early years, the amount of depreciation is also highest in the first year and then falls over the course of its useful life. A distinction is made between arithmetic-degressive and geometric-degressive.

    Progressive depreciation

    Here it is exactly the opposite of the declining balance depreciation: At the beginning, the value of the depreciation is lowest and then increases until the end of the useful life.

    Performance-related depreciation

    If an object of use is assumed to have a total performance, this can be depreciated according to its annual performance using a performance-related method.

  • 05.
    What is a low value asset?

    Normally, the depreciation of fixed assets takes place over several financial years. However, low-value assets are an exception. A write-off over several years is not worthwhile here, so you can write it off immediately. Low-value assets are items that are movable, wear-and-tear and can be used independently. This includes, for example, an office chair, but not a spare part for an office device due to the fact that it cannot be used independently. Immediate depreciation applies to purchases made from 2018 up to a limit of EUR 800, for purchases made up to the end of 2017 up to a limit of EUR 410. There is also the option of collective depreciation (pool depreciation) for assets between 250 euros (until the end of 2017: 150 euros) and 1,000 euros.

  • 06.
    What is a depreciation table?

    The abbreviation AfA stands for depreciation for wear and tear. Since the useful life of an asset cannot be freely selected, the Federal Ministry of Finance creates so-called depreciation tables to determine the normal useful life of fixed assets. The specified values ​​are based on experience and are not a binding legal norm. However, jurisdiction, business and administration are based on the values ​​given there. On the one hand there are tables for goods that can be used in general, but there are also tables for special branches of industry. To the depreciation tables of the BMF

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  • 07.
    When does the possibility of depreciation begin and when does it end?

    Depreciation is made from the day it is ready for operation. You will be billed to the exact month. So it is not the start of use that is decisive, but the day of purchase, i.e. the date of purchase or delivery. In the case of buildings, it is usually the handover day. Depreciation generally ends when the company leaves the company, as in the case of a sale or scrapping. If the asset is still used in the company after it has been depreciated down to its zero value, it must be kept in the books with a memory value of EUR 1.00.

  • 08.
    How can hidden reserves be created through depreciation?

    Hidden reserves can arise if, for example, a machine has been depreciated on a straight-line basis over ten years, but continues to be used in operation after the tenth year. It is no longer an asset in the books, but it is for production and operation. The difference between the book value and the actual value of the machine is known as the hidden reserve.

  • 09.
    What is a special depreciation?

    Special depreciation is not directly related to an impairment. They are more like a subsidy. Currently, only small and medium-sized companies have the option of special depreciation of up to 20 percent of the acquisition and production costs. Section 7g of the Income Tax Act regulates the precise requirements

  • 10.
    In which laws is depreciation regulated?

    The depreciation is regulated on the one hand in the Income Tax Act and in the Commercial Code.

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In particular, we used the information from the following sources for the topic "Depreciation / Depreciation":

Last update on April 11th, 2021

The pages of the topic "Depreciation / Depreciation" were last editorially checked on April 11th, 2021 by Michael Mühl. They are all up to date.

Previous changes on 06/21/2020

  • June 21, 2020: Consideration of the VAT reduction for the second half of 2020 to 16 percent in the depreciation calculator, provided that gross is selected for the acquisition costs and the time of acquisition is in the second half of 2020.
  • 01/27/2019: Extension of the article depreciation on buildings: The description now includes depreciation on commercially used buildings as well as depreciation on residential buildings.
  • Editorial revision of all texts in this subject area