DEPRECIATION AND REPRODUCTION OF FIXED ASSETS
In the manufacturing process, plant and equipment wear out, lose their original quality and should be replaced.Depreciation – a partial or complete loss of the principal means of their properties and use-value, with distinction, physical (material), and obsolescence.
Physical depreciation of fixed assets – it’s their material deterioration, loss of technical and operational properties in connection with their use and impact of natural forces. There are two types of physical deterioration:
first – in the operation of fixed assets
second – under the influence of atmospheric conditions during their inactivity and storage.
A distinction is also full and partial depreciation. With the full force of work equipment wear are eliminated and replaced by new ones, and if they qualify for a partial recovery through the repair.
Obsolescence of fixed assets – a process of depreciation due to technological progress, which is physically quite suitable tools become less economically beneficial use. Two forms of obsolescence. The first is the reduction in the cost of reproduction due to increased productivity in the industry that manufactures them. New tools are becoming cheaper, while acting morally impaired, economically obsolete. The second form of obsolescence associated with the emergence of new, better and more productive analogues of existing machinery and equipment.
For the economic recovery of physical and moral depreciation of their value in the form of depreciation included in costs of production.
Depreciation – a process of gradual transfer of fixed assets, to the extent of wear on the agricultural products and the accumulation of funds for the reproduction of funds consumed. Moved value of fixed assets in the product comes into the sphere of circulation. After the implementation of the monetary amount corresponding to the transferred fixed assets used for the acquisition of new assets to replace worn-out, that is to be restored.
Depreciation of fixed assets following functions:
1) describes a generalized form of depreciation of fixed assets;
2) ensure the replacement of worn out plant and equipment;
3) determine the level of costs of agricultural production.
In the economic practice for depreciation used depreciation, that is the monetary expression of the transferred value of fixed assets. They charge a monthly basis based on the depreciation rates and the cost of fixed assets.
Depreciation rate is determined by taking into account the useful life of fixed assets – the period during which they are used for other purposes. This period is determined by the enterprise independently on the basis of classification, approved by the Russian Government.
Depreciation can be calculated by various methods, their choice affects the rate of concentration of financial resources on an annual basis the functioning of plant and equipment. RF legislation provides four methods for calculating depreciation: the linear, declining balance, sum of years, in proportion to the volume of products (works). For tax purposes, the first two methods are used, they were the most widely used in practice.
Depreciation is not on all fixed assets, so a part of depreciable property shall not include:
1) The main means of non-profit organizations;
2) of improvements;
3) livestock;
4) sales publications (books, brochures and other similar items), works of art;
5) fixed assets transferred to the preservation of more than W months or are in the reconstruction and modernization of more than 12 months;
6) objects, the initial cost is less than 10 thousand rubles.
Businesses have the right to decide independently on the use of accumulated depreciation. Practice shows that the economic crisis, severe lack of funding depreciation directed primarily to the current needs of the enterprise rather than the reproduction of fixed assets, that is used for other purposes.
Under the conditions of market relations organization reproduces the main fund plays a critical role because it defines the quantitative and qualitative state assets. Under normal economic conditions, the value of fixed assets should recover fully, providing opportunities for their constant technical updates. In simple reproduction through depreciation charges to create new fixed assets, equal to the cost of worn out. For their expanded reproduction requires additional capital investment, funded by the profits of credit, contributions of founders and other sources.
In the context of rapid scientific and technological progress depreciation may well serve as a source of expanded reproduction of capital assets. In practice, the processes of a simple renewal of fixed assets and their extensions are closely related, their distinction is largely a formality.
Reproduction of fixed assets – is an ongoing process to update them through the purchase of new, renovation, modernization and repair of existing facilities. In this case, the following tasks:
1) Compensation departing for various reasons, plant and equipment;
2) increasing the number of fixed assets in order to increase the volume of production;
3) improving the structure of fixed assets.
The process of reproduction of fixed assets may also be produced by their rental and leasing.
Rent – this is a temporary transfer of the property owner the right to use another subject – the tenant. Aspect ratio of the object of the transaction is defined in the lease agreement, which specifies the shape and size of the rents, terms and conditions of its making. The most common form of payments are in a constant rate, calculated based on the value of the leased object. With a lack of cash payment can be made through the transfer of goods to the lessor or through the provision of certain services.
The contract may provide for the transfer of the tenant after a certain period of all rights to the leased property, that is, its redemption, in essence, a form of hire-purchase.
Kind of long-term lease and effective method of financing investment activity is leasing.
Leasing – a form of rent, which are inherent elements of loan operations, which gives it a resemblance to the loan.Unlike other species in the lease shall not use the basic tools that were in operation from the lessor, and the new, specially purchased by the leasing company to transfer them to the lessee.
Thus, in an operation involving three parties:
lessor (landlord) – an organization that acquired fixed assets in the property and transferring them to a temporary use for rent;
lessee (tenant) – a company or an entrepreneur interested in the use and acquisition of fixed assets;
seller, as is usually the company – the manufacturer of the object of lease (for tractors, agricultural machinery, equipment, vehicles, etc.).
In Russia, gaining financial leasing or leasing with the full cost. During the term of the contract the fixed assets of almost fully depreciated, and the lessor from the lease payments reimburse the cost or the most part. Lease term, in this case, as a rule, coincides with a lifetime of fixed assets.
There are other types of lease: hayring – medium-term (from 1 to 5 years) rating – a short-term (up to 1 year).When short-term lease purchase the leased equipment is not provided.
Thanks to the leasing companies are able to quickly and with minimal investment risk will replace obsolescent and obsolete plant and equipment.