Accounting Depreciation: Legal Methods and Best Practices

Introduction

Accounting depreciation constitutes a fundamental pillar of corporate accounting, allowing for the recognition of the progressive decline in value of fixed assets. Governed by the General Accounting Plan (PCG) and the General Tax Code (CGI), it directly impacts taxable income and asset valuation. Mastering the legal depreciation methods enables companies to optimize their financial management while complying with regulatory obligations. This article presents the main methods authorized 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 they be "actually recorded" and entered in the accounting records. Regulation ANC n°2014-03 specifies the application procedures, in particular for the component-based approach 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 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 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 temporis basis, starting from the date the asset is put into service.

Accelerated Depreciation: Accelerate Tax Deductions

Authorized by article 39 A of the CGI, accelerated depreciation allows for faster recognition of decline in value in the early years. Reserved for certain new assets with a minimum useful life of 3 years (industrial equipment, computer hardware, 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 corporate income tax. Caution: passenger vehicles, buildings and second-hand assets are excluded from this system.

Variable Depreciation and Usage-Based Methods

Less well-known, variable depreciation calculates the charge based on the actual use of the asset (machine hours, kilometers driven, units produced). This method, provided for by the PCG, is particularly suited to equipment whose wear depends directly on the level of activity. However, it requires rigorous monitoring and reliable estimation of the total usage potential. The component-based approach, mandatory for significant fixed assets (regulation CRC 2002-10), requires an asset to be broken down into separate 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 (protection period). Non-depreciable assets include: land, goodwill (except for an exception since 2022 for SMEs), works of art, and financial fixed assets. This distinction is crucial for properly establishing the depreciation schedule attached to the annual financial statements.

Conclusion

Choosing the right depreciation method requires balancing accounting requirements, tax optimization and the economic reality of assets. A well-thought-out strategy can generate significant tax savings while accurately reflecting the decline in value of the company's assets. The assistance of a chartered accountant remains essential to determine which of the different legal options is most appropriate.