Accounting Depreciation: Legal Methods and Practices

Introduction

Accounting depreciation constitutes a fundamental pillar of business accounting, allowing the progressive impairment of fixed assets to be recognised. 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 companies to optimise their financial management whilst respecting 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 undertaken" and recorded in accounting. The ANC regulation n°2014-03 clarifies the terms of application, notably for the component-based approach that 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 constitutes the default and most commonly used method. It consists of uniformly allocating 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 charge 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 on a pro-rata basis, from the date the asset is placed in service.

Declining Depreciation: Accelerating the Tax Deduction

Authorised by article 39 A of the CGI, declining depreciation allows the recognition of impairment to be accelerated in the first years. Reserved for certain new assets with a minimum useful life of 3 years (industrial equipment, computer equipment, commercial vehicles), it applies a multiplying 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 Production

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. It nevertheless requires rigorous monitoring and a reliable estimate of total usage potential. The component-based approach, mandatory for significant fixed assets (CRC regulation 2002-10), requires an asset to be broken down into distinct elements having 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 (term of protection). Non-depreciable assets include: land, goodwill (except for an exception since 2022 for SMEs), works of art, and financial fixed assets. The distinction is crucial for properly establishing the depreciation schedule attached to the annual accounts.

Conclusion

Choosing the right depreciation method requires reconciling accounting requirements, tax optimisation and the economic reality of assets. A well-designed strategy can generate significant tax savings whilst accurately reflecting the depreciation of assets. The assistance of a chartered accountant remains essential to arbitrate between the different legal options.