The deprecation of tangible fixed assets is added to the production and business cost of enterprises. Enterprises use the methods for the determination of depreciation of tangible fixed assets determine the depreciation of tangible fixed assets as follows.
1. Latest methods for the determination of depreciation of tangible fixed assets
In accordance with Clause 1, Article 13, Circular No. 45/2013/TT-BTC, production, and business establishments apply some methods for the depreciation of fixed assets as follows:
1 - Straight-line depreciation method;
2 - Adjusted reducing balance method;
3 - Method of depreciation based on units or volume of production.
2. Conditions for methods for the determination of depreciation of tangible fixed assets
Based on the capacity to meet the applicable conditions prescribed for each method of depreciation of fixed assets, enterprises may choose methods of depreciation suitable to each type of their fixed assets as follows:
1 - Straight-line depreciation method
- The straight-line depreciation method is the method of depreciation using a stable rate of each year into the enterprise’s business and production costs of its fixed assets involved in business activities.
Enterprises operating with high economic efficiency may accelerate their depreciation, but not more than 2 times the depreciation rate used by the straight-line method for rapid technology renewal.
Fixed assets involved in business activities and allow for accelerated depreciation are:
+ Machinery and equipment;
+ Experimental and measuring instruments;
+ Equipment and means of transport;
+ Management tools;
+ Animals and perennial gardens.
When conducting accelerated depreciation, enterprises shall ensure profitable business.
In case an enterprise accelerates the depreciation by more than 02 times the rate specified in the time frame for use of fixed assets (provided in Appendix 1 to the Circular 45/2013/TT-BTC), it is not allowed to include the excessively accelerated depreciation (more than 2 times) in the reasonable costs upon calculating income tax in the period.
2 - Adjusted reducing balance method
- This method applies to enterprises in the fields in which technology requires rapid change and development.
- Fixed assets involved in business activities that are depreciated according to the adjusted reducing balance method must simultaneously meet the following conditions:
+ Condition 1: Being new (not used) fixed assets;
+ Condition 2: Being machinery and equipment; experiment and measuring instruments.
3 - Method of depreciation based on units or volume of production
- Fixed assets involved in business activities that are depreciated according to this method are types of machinery and equipment simultaneously meeting the following conditions:
+ Condition 1: Directly related to production;
+ Condition 2: The total units or volume of products can be determined according to the design capacity of fixed assets;
+ Condition 3: The average actual capacity per month in the fiscal year is not below 100% of design capacity.
- Enterprises may decide on the methods and period of depreciation of fixed assets in accordance with this Circular and notify to their managing tax agencies before implementation.
- Methods of depreciation applicable to each fixed asset that an enterprise has chosen and notified to its managing tax agency must be implemented consistently during the process of use of fixed assets.
In special cases of changing the method of depreciation, an enterprise shall clearly explain the changed way of using the fixed assets in order to bring economic benefits to the enterprise.
For each fixed asset, an enterprise may change only once the method of depreciation during the process of using such asset and shall notify in writing the change to its managing tax agency.
- For the registration of the method of depreciation, enterprises can:
+ Register one method for all the remained or generated tangible assets or
+ Inform its managing tax agency for particularly registering for any generated fixed assets.