In the course of its economic activity, enterprises use buildings, equipment, vehicles, and other objects that serve for more than one year. These assets gradually wear out, losing their original value.
To reflect this process in accounting and tax accounting, the mechanism of depreciation is used. It allows gradually transferring the cost of fixed assets to finished products or services, forming a source for future renewal of production funds. As of 2026, clear rules for calculating depreciation apply in Ukraine, regulated by the Tax Code and national accounting standards. Understanding the essence of depreciation, methods of its calculation, and norms is critically important for proper calculation of product costs, optimization of tax liabilities, and effective management of enterprise assets.
Therefore, the main topics remain what depreciation of fixed assets is, what the depreciation norms of fixed assets are, methods of depreciation of fixed assets, and depreciation periods for fixed assets. But it is worth starting with what depreciation of fixed assets is and how to understand this without experience. It is also important to understand what the depreciation norm for fixed assets is or what the depreciation period for fixed assets is, and only then how to calculate the depreciation of fixed assets.
Depreciation of fixed assets: definition and purpose
Depreciation of fixed assets — is the process of gradually transferring the cost of fixed asset objects to the produced goods, performed works, or provided services as they physically and morally wear out. The economic essence of depreciation lies in the recovery of funds spent on the acquisition or creation of long-term assets. Through depreciation deductions, a source for simple and expanded reproduction of fixed assets is formed.
The main purpose of depreciation in accounting is to ensure the accurate reflection of the residual value of assets on the balance sheet. In tax accounting, depreciation is used to calculate gross expenses that reduce taxable profit. Not all fixed assets are subject to depreciation. Land plots, residential property, and assets with a value not exceeding a set limit are not depreciated. Depreciation is not calculated for fixed assets that are in conservation or repair for more than 12 months. Proper application of depreciation policy allows the enterprise to effectively manage costs and investment resources.
Methods of depreciation of fixed assets and their application
Enterprises have the right to choose the method of depreciation independently, documenting their choice in accounting policy. There are several main methods provided by national accounting standards. The first method is the straight-line (uniform) method. It provides for equal distribution of the cost of the asset throughout its useful life. The amount of depreciation remains the same each month. This method is the simplest and most common.
The second method is the declining balance method. It involves the calculation of depreciation at a reduced rate on the residual value of the asset. At the beginning of operation, the deduction amounts are higher, and over time they decrease. The third method is the accelerated declining balance method. It uses double the depreciation rate compared to the straight-line method.
The fourth method is the cumulative method. The amount of depreciation is calculated as the product of the depreciable cost and the cumulative coefficient. The fifth method is the units of production method. Depreciation is calculated proportionally to the volume of products produced. For tax accounting, separate rules and minimum allowable depreciation periods apply.
Depreciation norms of fixed assets: what it is and how they are established
The depreciation norm is the established percentage of the cost of fixed assets, which is deducted monthly or annually as expenses of the enterprise. It is determined as the ratio of the annual sum of depreciation deductions to the initial cost of the asset, expressed as a percentage. In accounting, enterprises independently set depreciation norms based on the chosen calculation method and expected useful life of the asset.
At the same time, the enterprise has the right to apply acceleration coefficients to depreciation norms provided by law. In tax accounting, depreciation norms are more regulated. The Tax Code of Ukraine establishes minimum acceptable useful lives for different groups of fixed assets. Based on these periods, minimum depreciation norms are calculated. For fixed assets used in aggressive environments or multi-shift operations, increased norms may apply. Correct determination of depreciation norms influences the tax burden and financial results of the enterprise.
Depreciation period of fixed assets: how it is determined and what it depends on
The useful life of a fixed asset object is the period during which the enterprise plans to use the asset to obtain economic benefits. It is determined by the enterprise itself upon putting the asset into operation. The depreciation period depends on several factors: expected productivity of the asset, physical wear, which depends on the number of shifts, operating conditions, aggressive environment, maintenance; moral wear related to the emergence of new technologies or changes in market demand; legal limitations, such as lease terms or patent duration. The enterprise has the right to review the useful life if the operating conditions change or modernization is performed. In tax accounting, useful lives for most assets are fixed. In case of liquidation or sale of the asset before the end of its depreciation period, the undepriciated part of the cost is charged to expenses.
How to calculate depreciation of fixed assets: main approaches
Depreciation is calculated monthly, starting from the month following the month of putting the object into operation. Calculation ceases from the month following the month of the asset's disposal or its full depreciation. The calculation of depreciation depends on the chosen method. Under the straight-line method, the annual depreciation amount is calculated by dividing the depreciable cost by the useful life. The monthly amount equals the annual divided by 12.
Under the declining balance method, the annual amount is determined by multiplying the residual value by the depreciation rate calculated based on the useful life. Using the units of production method, the monthly depreciation amount is proportional to the actual volume of products produced. The choice of depreciation calculation method should be documented in the enterprise's accounting policy. Changing the method is only allowed from the beginning of the reporting year. Depreciation calculations are documented with primary documents. Depreciation in accounting is reflected by debiting expense accounts and crediting account 13 “Accumulated depreciation of fixed assets”. For taxation purposes, separate calculation rules are applied.
Accounting for depreciation in accounting
To reflect depreciation deductions in accounting, account 13 “Accumulated depreciation of fixed assets” is used. This account is contra to the accounts of fixed assets. Depreciation accrual is recorded as a credit to account 13 and debited from the corresponding expense accounts. The choice of expense account depends on where the fixed asset is used. For production equipment, depreciation is included in direct costs on account 23 “Production”. For administrative buildings and office equipment, depreciation relates to administrative expenses on account 92. For trading and catering facilities, it is included in sales expenses on account 93. Analytical accounting for depreciation is maintained for each fixed asset object separately.
In the synthetic accounting registers, the total amount of accumulated depreciation is recorded. Enterprises have the right to apply simplified accounting methods. For small enterprises, it is permissible to calculate depreciation once a year. Accounting for depreciation is inextricably linked to accounting for fixed assets. Upon disposal of the asset, the accumulated depreciation amount is written off from the debit of account 13 in correspondence with the credit of account 10 “Fixed assets”. Primary documents for accounting depreciation are monthly depreciation calculation statements. The statements can be made in any form but must contain mandatory requisites. Specialized accounting programs are used for automation of accounting. Timely and accurate reflection of depreciation allows for a reliable assessment of the financial condition of the enterprise.
Common mistakes in calculating depreciation of fixed assets
Despite the simplicity of the procedure, accountants often make mistakes in calculating depreciation. The first mistake is the incorrect determination of the useful life. This leads to underestimating or overestimating depreciation deductions. The second mistake is the incorrect choice of the depreciation method, which does not correspond to the conditions of use of the object. The third mistake is calculating depreciation on objects that are not subject to depreciation (land plots, residential property).
The fourth mistake is incorrectly determining the initial cost of the object. The initial cost does not include costs unrelated to the acquisition or construction. The fifth mistake is continuing to calculate depreciation after the object has been fully depreciated. The sixth mistake is calculating depreciation on objects that are in conservation. The seventh mistake is reflecting depreciation incorrectly in tax accounting. The eighth mistake is the absence of documentary evidence of the change in the depreciation method.
The ninth mistake is failing to adjust depreciation in case of modernization. The tenth mistake is the inconsistency of accounting and tax data. Regular internal audits help to avoid these mistakes.