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Depreciation Schedule
Running a business

Depreciation Schedule – Guide and Example

Not all business assets are for sale. You have fixed assets – equipment, property, buildings, machinery, and vehicles – which you require to carry out daily business operations over an extended period. 

Due to their high monetary value and ample usage time, businesses are not required to purchase these products immediately. Instead, businesses can spread out their cost over the asset’s estimated useful life. 

The depreciation schedule exists to organise these depreciating assets and their different costs, and how long these costs will be paid for. Read this article to discover how you can benefit from a depreciation schedule and how to set up your schedule to improve your small business accounting.

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What Is a Depreciation Schedule? 

A depreciation schedule forecasts the value of a company’s depreciation expense, fixed assets, and capital expenditures. 

Economic assets are different types of properties, plants, and equipment. As these assets are used more frequently, they start to wear and tear and depreciate in value. Accounting for depreciation will help you put a number on that wear and tear and help your business understand the value of that asset over time. 

Since different assets lose value at different rates, accounting for depreciation can help you calculate that difference. The schedule will specify three main aspects: 

  • The different classes of assets 
  • Type of depreciation method used
  • The cumulative depreciation incurred at various points in time 

The depreciation schedule can also include forecasted and historical capital expenditure (CapEx). A depreciation schedule guides you or your accountant in deciding what tax deductions to claim when doing your tax return each financial year. This ensures that you claim the correct amount of tax. 

You can also seek professional advice from a qualified depreciation quantity surveyor to confirm the amount of tax you can claim. Provide this material to a depreciation specialist that works directly with the Australian Taxation Office (ATO). This way, you can be sure that your schedule will be simple and suited to your tax returns. 

Some depreciation quantity surveyors even let you copy, adapt, modify, and transmit changes to previous tax returns. This enables you to claim depreciation from when you first owned the property.

This also ensures that there won’t be any mistakes due to items being improperly listed on the depreciation schedule. Another great benefit is that the costs used to complete it are tax refundable. 

There are five main methods of depreciation. These include straight line, double declining balance, sum-of-the-years’-digits, units of production, and a modified accelerated cost recovery system. Below is an example of the double declining balance method. 

Depreciation Schedule Example 

This accelerated depreciation method matches the value of assets that lose value quickly throughout their useful lives. You can calculate the double declining depreciation by doubling the straight line depreciation rate. 

For instance, let’s say your asset’s depreciable value is $10,000, with a useful life of five years. Your annual straight-line depreciation would be: $2,000 ($10,000 / 5 years)

Your straight line rate is 20 percent ($2,000 annual depreciation / $10,000 depreciable value). This means the double-declining rate is 40 percent. 

Thus, for the subsequent years, you can apply the 40 percent depreciation rate to the remaining net book value (book value - depreciation). 

Why Do You Need a Depreciation Schedule? 

Using a depreciation schedule for a rental property or investment property ensures that you claim the full amount of tax back by the time you complete the tax return. 

When you work with depreciation quantity surveyors that are ATO-compliant, you are not only given the benefit of claiming guaranteed entitlements for your tax return, but you can also ensure you receive the biggest return possible from your investment property by maximising your entitlements. 

While there are significant benefits to ordering a depreciation schedule immediately after your purchase, there is also a great benefit in starting your depreciation schedule at the beginning of the specific financial year you are in to maximise your returns. 

Is the Cost of a Depreciation Schedule Deductible? 

You can deduct the amount of depreciation annually to recover the cost of the business asset. It allows small business owners to reduce the asset's value over time due to wear and tear. However, the asset must have a useful life of more than one year. This is usually listed as an expense on an income statement

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How to Set Up a Depreciation Schedule 

To meet your obligations of creating a well-defined depreciation schedule, structure it in the following way: 

  1. Your first line item should be referenced as sales revenue. This is because sales revenue is connected to depreciation and capital expenditures. 
  2. Prepare a section for capital expenditures below the first line item. Reference historical CapEx for any available periods. 
  3. Use appropriate forecasting assumptions to project future capital expenditures. To determine the correct forecasting assumption to apply, use intuition to come to a decision-based conclusion of one of the following: 
  • Fixed recurring amount 
  • CapEx as a percentage of sales 
  • Reasonable “hard dollars” the company is expected to incur as they operate 

Categories Listed Within a Depreciation Schedule 

To make the report easy to read and understand for your accountant, the depreciation specialist will modify, transmit, and distribute the property assets and items and then list them in sections. Here are two categories in the investment property depreciation schedule: 

  • Plant and Equipment Depreciation. These are any assets linked to your investment property that have a finite lifetime and may fall in value with time due to wear and tear. This may include fittings such as furniture, lighting, air conditioning units, carpets, appliances such as a fridge or stove, security systems, and garbage bins provided with the property. 
  • Capital Works Depreciation. This includes any aspects of the building with a structural nature, such as extensions, constructions, and alterations. It also includes work undertaken such as kitchen renovations, the addition of a fence, gazebo, sealed driveway, or carport, extensions for a patio or garage, or bathroom makeovers. 

You must include all items to receive a full tax return. Quantity surveyors are very useful where this is concerned, as they can visit the property to ensure you didn’t miss any items or aspects from the depreciation report. 

Tax Depreciation Schedule Or A Tax Depreciation Report? 

A tax depreciation schedule is a report that is returned to you so that you may use it for your tax return. Ultimately, it is only commonly known as a depreciation schedule because the items are listed in a schedule format. 

A depreciation report is typically used to describe what you received. However, both are essentially the same thing. 

When you order a tax depreciation report, you can expect to receive the schedule and listed items such as white goods, carpets, etc. Based on that information, you can then use the depreciation report to calculate how much tax you can claim. 

How QuickBooks can help

To ensure you get the most out of your tax returns, you must keep a record of your assets and expenses. Manually calculating and reporting your depreciation schedule into an excel sheet or writing it down can be tiring, and you may eventually forget to record it. 

So why not go digital with QuickBooks’ cloud accounting software? With QuickBooks, you’ll be able to set up and automate your asset depreciation within minutes. Contact us to improve and maintain the financial well-being of your small business.

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