Asset accounting and straight line depreciation

Fixed assets are kept for the long term: land, building, plant, vehicles. They may be tangible (you can touch them) or intangible (patents, copyrights). Depreciation is the gradual and permanent fall in a fixed asset's value; accounting spreads the cost used up over the years of its life. Freehold land is usually not depreciated.

Two amounts set the total depreciation:

• Acquisition cost = purchase value + transport, installation and pre-operating expenses. Everything spent to make the asset ready for use is part of its cost.
• Salvage value: what the asset will fetch at the end of its useful life (its scrap value).

Total depreciation over the life = acquisition cost − salvage value.

Under the Straight Line Method (SLM), also called the fixed instalment method, the charge is calculated on the original cost, and it is the same every year: (acquisition cost − salvage value) / expected useful life. In Excel, =SLN(cost, salvage, life) does it in one go: cost is the acquisition cost, salvage the scrap value, life the years of use.

Asset accounting means keeping an asset register (asset ID, description, purchase date, cost, useful life, salvage value), working out depreciation, and preparing the schedule of fixed assets for the balance sheet.