Accounting Depreciation: Legal Methods and Practices

Introduction

Accounting depreciation constitutes a fundamental pillar of business accounting, allowing companies to record the progressive depreciation of fixed assets. Governed by the General Accounting Plan (PCG) and the General Tax Code (CGI), it directly impacts tax results and asset valuation. Mastering the legal depreciation methods enables companies 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 allocation 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 it be "actually carried out" and recorded in the accounts. Regulation ANC no. 2014-03 clarifies the conditions of application, notably for the component-based approach which has been mandatory since 2005. Any company 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 distributing uniformly the cost of an asset over its useful life. The calculation is performed by applying a constant rate to the original value of the fixed asset. For example, for equipment costing £10,000 depreciable over 5 years, the annual depreciation amounts to £2,000 (rate of 20%). This method applies to virtually all assets and respects the prudence principle in accounting. For the first year, depreciation is calculated pro rata temporis, from the date the asset is put into service.

Declining balance depreciation: accelerating the tax deduction

Authorised by article 39 A of the CGI, declining balance depreciation allows companies to accelerate the recognition of depreciation 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 regime.

Variable depreciation and units of output

Less well-known, variable depreciation calculates the charge 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 total use potential. The component-based approach, mandatory for significant fixed assets (CRC regulation 2002-10), requires the breakdown of an asset 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, business goodwill (except where applicable since 2022 for SMEs), works of art, and financial investments. This distinction is crucial for correctly drawing up the depreciation schedule appended to the annual accounts.

Conclusion

Choosing the right depreciation method requires reconciling accounting requirements, tax optimisation and the economic reality of assets. A well-thought-out strategy can generate significant tax savings whilst faithfully reflecting the deterioration of assets. The assistance of a qualified accountant remains essential to decide between the various legal options.