Depreciation: spreading a cost over the years of use

TechBâtiment SAS bought a digger for €84,000 in January. Its director wants to expense it within the year: profit and tax would drop by that much. The accountant refuses and deducts only €12,000. Before reading on: where does that figure come from, and who decides the period?

A fixed asset is not an expense

An item consumed within the year is an expense. An item serving several years is a fixed asset: its cost is spread across the period during which the business uses it. The difference is not one of amount but of useful life, and it decides the accounting treatment as much as the profit.

Article 39 of the French Tax Code expressly lists depreciation among the charges deducted from net profit. The deduction is therefore not a concession: it is the ordinary mechanism by which an investment reaches the profit and loss account, year after year.

Who sets the period

Not the business alone. The doctrine relies on the practices of each kind of industry, trade or business, allowing for particular circumstances where they exist. A period is therefore justified by reference to a sector practice, not by whatever pace would be convenient to write down.

The 20 % tolerance is a margin, not a right to choose freely. It is measured around the observed sector practice: a period departing further must be explained by circumstances specific to the business, and that explanation is prepared before an audit, not during one.

The computation, line by line

Straight-line depreciation spreads the value consumed in equal instalments across the normal period of use. The declining-balance method concentrates the deduction on the early years by applying a coefficient to the straight-line rate; it is open only to certain categories of asset.

The plan starts when the asset enters service

Depreciation does not run from the purchase date but from the date the asset enters service: it is use that consumes value, not ownership. An asset bought in November and put into service in February opens no instalment in the year of acquisition.

The first instalment is then computed pro rata over the days or months of use, depending on the convention adopted, and the whole plan shifts accordingly. That shift is documented in the fixed-asset register, where every item carries its date, its base and its period.

An asset whose parts wear out at different rates is depreciated by components: the structure of a building and its roof are not consumed together. Each component then receives its own period, and the plan becomes the sum of several plans running side by side.

• Date of entry into service, which opens the plan — not the invoice date.
• Depreciable base, gross value less the residual value expected.
• Period adopted, together with the sector practice that grounds it.
• Method, straight-line or declining-balance, and the coefficient applied where relevant.

Depreciation or impairment?

Both reduce the value of an asset, but for opposite reasons. Depreciation records an expected consumption, regular and systematic. Impairment records a probable loss of value, generally occasional and not irreversible, that nothing had scheduled in advance.

The two can also meet on the same asset. A machine is depreciated on its plan and, if an adverse event cuts its value below the net book figure, impaired on top. The plan continues to run underneath; the impairment sits above it and is reviewed each year.