Depreciation is an accounting method used to allocate the cost of an asset over the period in which the company expects to use it. The purpose is to ensure that the company's fixed assets, equipment and intangible assets in the accounts reflect a realistic value that takes into account the asset's ongoing loss of value.
A classic example is a car that is depreciated over 5-10 years. The depreciation shows in the accounts that the value of the car gradually decreases as it wears out and loses market value.
Depreciation Act
Depreciation in Denmark is regulated by the Depreciation Act, which sets out the tax rules. Among the most important principles are:
- Depreciation only applies to assets that are used commercially.
- The asset must be delivered and used in operations.
- Generally, you can depreciate up to 25% annually (except for small purchases).
Depreciation methods
There are several methods of depreciation, each of which may be relevant depending on the type of asset:
- Straight-line depreciation: A fixed amount is depreciated each year over the life of the asset.
- Balance method: Depreciation is a fixed percentage of the asset's residual value - the amount is therefore smaller each year.
- Immediate depreciation: Used for small purchases (e.g. IT equipment) where the value can be fully deducted in the year of purchase. The limit for immediate depreciation is regulated annually by the Ministry of Taxation.
It is always advisable to consult with an accountant on which method best suits your company's assets and accounting principles.
Write-off of receivables
Write-offs can also be relevant when a company no longer realistically expects to receive payment from a customer. This can happen in cases of insolvency, bankruptcy or when a receivable is time-barred. Even if a receivable is recorded as written off, in some cases it can still be attempted to be recovered.
Write-offs are an important part of a company's credit policy and loss management. With credit lookup, credit monitoring and data washing, Qatchr enables companies to reduce the risk of losses by identifying doubtful customers early on and thus limit the need for later write-offs.
