Depreciation

Depreciation means that the acquisition cost of a fixed asset is spread as an expense over the asset's useful life. If the company buys a machine that will be used for five years, it is charged to the profit and loss account at one fifth per year instead of the full amount in the first year.

For bookkeeping purposes, depreciation is usually straight-line, meaning equal amounts each year. For tax purposes, there are special rules for equipment: the book-based depreciation method (räkenskapsenlig avskrivning) or the residual value method (restvärdesavskrivning), which can give larger deductions in the first few years. The difference between planned depreciation and tax depreciation is reported as excess depreciation (överavskrivning).

What useful life is reasonable depends on the type of asset. Computers are normally depreciated faster than buildings. We set depreciation schedules as part of the year-end closing.