Accounting Depreciation: Legal and Practical Methods

Introduction

Accounting depreciation constitutes a fundamental pillar of business accounting, allowing the progressive depreciation of fixed assets to be noted. Governed by the General Accounting Plan (PCG) and the General Tax Code (CGI), it directly impacts tax results and asset valuation. Mastering legal depreciation methods allows companies to optimize their financial management while respecting regulatory obligations. This article presents the main methods authorized in France, their conditions of application, and the assets concerned 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 carried out” and recorded in the accounts. Regulation ANC No. 2014-03 specifies the terms of application, in particular for the component approach which has been mandatory since 2005. Any company subject to accounting obligations must therefore depreciate its tangible and intangible assets whose useful life is determinable.

Linear depreciation: the reference method

Linear depreciation is the default and most used method. It consists of uniformly distributing the cost of an asset over its useful life. The calculation is carried out by applying a constant rate to the original value of the asset. For example, for equipment worth €10,000 depreciable over 5 years, the annuity amounts to €2,000 (rate of 20%). This method applies to almost all assets and respects the principle of accounting prudence. For the first year, depreciation is calculated pro rata temporis, from the date the property is put into service.

Decreasing depreciation: accelerating the tax deduction

Authorized by article 39 A of the CGI, decreasing depreciation makes it possible to accelerate the recognition of depreciation over the first years. Reserved for certain new goods with a minimum useful life of 3 years (industrial equipment, IT equipment, utility vehicles), it applies a multiplier coefficient at the linear rate: 1.25 (3-4 years), 1.75 (5-6 years), 2.25 (more than 6 years). This method provides a substantial cash flow benefit by deferring corporate tax. Please note: used passenger vehicles, buildings and goods are excluded from this regime.

Variable depreciation and per unit of work

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

Depreciable and non-depreciable assets

Are depreciable: constructions (20-50 years), industrial equipment (5-10 years), vehicles (4-5 years), furniture (10 years), software (1-3 years), patents (term of protection). The following are not depreciable: land, goodwill (except for exceptions since 2022 for SMEs), works of art, and financial assets. The distinction is crucial to correctly establish the amortization table annexed to the annual accounts.

Conclusion

Choosing the right depreciation method requires reconciling accounting requirements, tax optimization and the economic reality of the assets. A well-thought-out strategy can generate significant tax savings while accurately reflecting asset depreciation. The support of an accountant remains essential to arbitrate between the different legal options.