Accounting Depreciation: Legal Methods and Practices

Introduction

Accounting depreciation constitutes a fundamental pillar of business accounting, enabling the progressive recognition of the depreciation of fixed assets. Governed by the General Accounting Plan (PCG) and the General Tax Code (CGI), it directly impacts taxable profit and asset valuation. Mastering the legal depreciation methods enables businesses to optimise their financial management whilst complying with regulatory obligations. This article presents the main methods authorised in France, their conditions of application, and the assets covered by each approach.

The legal framework for depreciation in France

Depreciation is defined by article 322-1 of the PCG as "the systematic distribution of the depreciable amount of an asset over its useful life". Article 39-1-2° of the CGI governs the tax deductibility of depreciation, requiring that they be "actually incurred" and recorded in accounts. Regulation ANC n°2014-03 specifies the application arrangements, notably for the component approach mandatory since 2005. Any business subject to accounting obligations must therefore depreciate its tangible and intangible fixed assets whose useful life is determinable.

Straight-line depreciation: the reference method

Straight-line depreciation is the default and most widely used method. It consists of uniformly distributing the cost of an asset over its useful life. The calculation is performed by applying a constant rate to the original value of the asset. For example, for equipment costing £10,000 depreciable over 5 years, the annual allowance amounts to £2,000 (rate of 20%). This method applies to virtually all assets and respects the accounting prudence principle. For the first year, depreciation is calculated pro rata temporis, from the date the asset is brought into use.

Declining depreciation: accelerating tax deduction

Authorised by article 39 A of the CGI, declining depreciation allows the depreciation to be accelerated in the early years. Reserved for certain new assets with a minimum useful life of 3 years (industrial equipment, IT equipment, commercial vehicles), it applies a multiplier coefficient to the straight-line rate: 1.25 (3-4 years), 1.75 (5-6 years), 2.25 (more than 6 years). This method offers a substantial cash flow advantage by deferring corporation tax. Note: passenger vehicles, buildings and second-hand assets are excluded from this scheme.

Variable depreciation and units of output

Less well known, variable depreciation calculates the allowance based on the actual use of the asset (machine hours, kilometres travelled, units produced). This method, provided for by the PCG, is particularly suited to equipment whose wear depends directly on activity. However, it requires rigorous monitoring and reliable estimation of the total use potential. The component approach, mandatory for significant fixed assets (regulation CRC 2002-10), requires an asset to be divided into separate elements with different useful lives, such as a roof or boiler in a building.

Depreciable and non-depreciable assets

Depreciable assets include: buildings (20-50 years), industrial equipment (5-10 years), vehicles (4-5 years), furniture (10 years), software (1-3 years), patents (duration of protection). Non-depreciable assets include: land, goodwill (except for special provisions since 2022 for SMEs), works of art, and financial fixed assets. This distinction is crucial for properly preparing the depreciation schedule attached to the annual accounts.

Conclusion

Choosing the right depreciation method requires balancing accounting requirements, tax optimisation and the economic reality of the assets. A well-considered strategy can generate significant tax savings whilst accurately reflecting asset depreciation. Support from an accountant remains essential to choose between the various legal options.