Depreciation of the fixed assets

DEPRECIATION OF THE FIXED ASSETS (EN: basic funds depreciation, amortization; DE: Amortisation der Grundfonds; FR: amortissement; ES: amortizacion de fondos basicos; RU: амортизация основных фондов) is the process of the gradual transfer of the value of the fixed assets during their wear onto the product, which is produced, or work (service), which is performed.

The necessity of the depreciation is caused by the peculiarities of the participation of the fixed assets within the process of production: they work during the series of the production cycles, while keeping their natural form. The reimbursement of the fixed assets in their natural form proceeds during the new capital construction and overhaul of the acting fixed assets. They distinguish the physical wear, which is caused by the active work of the fixed assets, physical-chemical processes, which are associated with the production, natural metabolism, and emergencies (natural disasters, and others), and moral wear, which occurs as the result of the decrease of the cost of reproduction of the fixed assets and technical obsolescence because of the scientific-technical progress.

The cost of the means of labour, which have been consumed, is included into the expenses of production (cost of the products), and in order to reimburse them, there is created within the USSR the depreciation fund by the accumulation of the depreciation expenditures, which are performed according to the established norms. The actual norms of depreciation have been introduced since 1 January 1975. There have been established: the norm for the renovation (for the complete reimbursement of the fixed assets) and the norm for the overhaul and modernization (partial restoration). The norms of the expenditures for the complete restoration of the fixed assets (1981) have been increased on the account of the decrease of the amounts of the depreciation expenditures for the overhaul. The depreciation expenditures for the financing of the capital investments are placed into the Strojbank of the USSR. The expenditures, which are assigned for the financing of the overhaul, are paid within the limits of the planned amount according to the instructions by the enterprises from their bank accounts into the special bank accounts for the overhaul within the State Bank of the USSR.

For the fixed assets of the mining-extracting industry (coal, iron, and others), the service time of which depends on the time of the exhaustion of the reserves of minerals, and which, after the exhaustion of the reserves, may not be used without the major reconstruction for the other purposes, the norms of the depreciation for the renovation are established in rubles per 1 tonne of the industrial reserves (per tonne rates). For the other types of the fixed assets, the service time of which is determined by their actual suitability (the time of depreciation) the norms of the depreciation are established according to the norms, which are based on the service times. The depreciation for the overhaul within the mining-extracting industry for all fixed assets is calculated according to the norms of depreciation, which are differentiated according to the groups of the fixed assets. They are necessary for the record-keeping of the depreciation according to the certain types of the means of labour and inventory objects for the determination of the effectiveness of the new machinery and more correct calculation of the cost of the individual products. For the planning of the depreciation expenditures for the whole ministries and departments, there may be used the average norms of depreciation, which are determined by the assignment of the amount of depreciation expenditures, which is calculated according to the individual norms, to the annual average value of the fixed assets.

Within certain socialistic countries, for example within the East Germany, there is used, along with the term "depreciation of the fixed assets", the term "depreciation of the deposits", which means the amount of income from the sale of the extracted product, which, through the depreciation expenditures (for the exploration and unsealing of the deposits), is included as the constituent part of the cost into the price, and is the source of the financing of the future capital investments, or of the simple reproduction of the fixed assets at the deposits, which are operated. They also use within Romania the term "depreciation of the deposits" (the reimbursement of the expenses for the geological-exploratory works at the deposits, which are transferred into the accounting balance of the mining enterprises).