Amortization / Depreciation / Depreciation charge

Depreciation expresses the obsolescence of a company's previous investments. It can be accounted for as a cost, which is good for the business.

Every once new and very valuable investment loses its value with use. The new company car wears out in a few years, but it can still be used well. At the same time, a computer, phone or software can become completely worthless in a few years. 

Depreciation is the natural process by which something once valuable becomes less and less valuable every year. Depreciation is the specific method by which we account for this as a cost in our accounting records in accordance with the law. 

Depreciation (charge) is used to record the gradual obsolescence of the company's material or intellectual assets. At the same time, the depreciation not only shows that these things are worth less and less, but also that we used them for work, production, and value creation. 

We express this by accounting for depreciation among costs, after which we do not have to pay value-added tax, VAT or other taxes. Here, however, there are strange exceptions, so it is worth listening to the accountant in this area as well, and asking for his opinion well in advance on how to account for the obsolescence of our company's various assets. 

During every investment, when we buy new devices, material or intellectual goods, we have to take into account a useful life. This means that it is necessary to determine how long we can use the given device, machine, software in our business. The way to do this is defined in legislation. So we can't beat ourselves up to figure out how many years we want to depreciate a company car to zero, for example. 

There are several methods for accounting for depreciation. Linear depreciation is when the same amount of depreciation is charged as a cost every year. We call it degressive if the amount accounted for as depreciation over the years. Accounting for amortisation is progressive if we take an increasingly large proportion as depreciation.