Depreciation of Fixed Assets

What does depreciation of fixed assets consist of?

Depreciation of fixed assets corresponds to the decrease in the value of elements classified in it, due to the wear and tear caused by usage, action of nature or normal obsolescence. The above mentioned loss of rights, whose purpose is physical fixed assets of companies, shall be registered periodically in the cost or expense accounts (depreciation charges for the period of calculation that shall have as offset, accumulated depreciation records, classified as adjustment accounts of fixed assets (RIR/99 art. 305).

Note:

From 01/01/96, considering the end of indexation of financial statements, the depreciation quotas to be registered in bookkeeping as cost or expense shall be calculated by applying the annual depreciation rate on the value in Reais of the cost of acquisition registered in the accounts.

How must the annual rate of depreciation be fixed?

General rule: the rate of depreciation shall be fixed in terms of the period that is expected for the economic utilization of the asset by the taxpayer, in production of his yields (RIR/99, art. 310).

By 12/31/98, SRF had not fixed, for tax purposes, the useful life period for each type of asset. At that time, the annual rates of depreciation resulting from the administrative jurisprudence were admitted (IN SRF Nr. 02/69).

Notes:

a) the useful life period for the purpose of depreciation of computers and peripherals (hardware), rate of 20% per annum;

b) the minimum period admissible for amortizing costs and expenses of acquisition and development of software used in data processing, rate of 20% per annum.

The rate of depreciation applicable to each case is obtained by dividing 100% of the useful life, in months, quarters or years, thus calculating the monthly, quarterly, or annual rate to be used.

As of 12/31/98: Normative Instruction SRF Nr. 162, of 12/31/98, (in compliance with art. 310, § 1 of RIR/94, approved by Decree Nr. 1041 of January 11, 1994), establishes that the depreciation quota to be registered in the legal entity's accounts, as operating cost or expense, shall be determined based on the useful life periods and on the depreciation rates in the annexes I (assets listed in the Common Nomenclature of MERCOSUR - NCM annexed) and II (other assets).

How will depreciation be calculated on used assets acquired?

The useful life period admissible for the purpose of depreciation of the used asset acquired is the greatest among the following (RIR/99, art. 311):

What is the condition for a truck to be considered \"off-road\", for the purpose of depreciation within a period of four years?

Trucks are considered \"off-road\", those that are built specially for heavy duty tasks related to transport of minerals, stones, earth with stones and similar materials used within the construction or mining areas.

How to proceed when the rate of depreciation effectively supported by the assets of the legal entity diverges from that normally admissible fixed or not for tax purposes by SRF?

The income tax legislation, while fixing the admissible useful life period for each kind of asset, takes into consideration the normal or average terms of its usage. However, the taxpayer has the right to calculate the quote suitable to the condition of depreciation of his assets provided he gives evidence of this adjustment while adopting a rate greater than usually allowed, through a report of the National Technological Institute or any other official entity for scientific or technological research (RIR/99, art.12 310, paragraphs 1 and 2).

Who can register the depreciation charges of assets?

Depreciation shall be deducted only by the taxpayer who bears the economic charges of the loss or obsolescence, according to the terms of ownership, possession or usage of the asset.

The non-depreciated value of assets subject to depreciation and have become useless or in disuse shall be calculated, during the actual exit of the asset from the company's equity (physical write-off), as non-operating cost. When there is a calculable economic value, the sale amount shall be calculated as a non-operating income for the company (RIR/99, art. 305, paragraphs 1 and 4).

Note:

Depreciation quotas of assets that not being used in production or that are meant for resale, are not allowed for calculating actual profit. Depreciation quotas on property given freely are not deductible (RIR/99, art. 307, sole paragraph, clause II ).

What are the assets that can be depreciated?

All physical assets subject to wastage due to usage, natural causes, normal obsolescence, including buildings and construction, as well as forestry projects meant for exploration of their respective benefits (for forestry projects see PN CST 18/79) can be objects of depreciation. From 01/01/96, only depreciation of movable or fixed assets that are intrinsically related to production or sale of goods or services that are the purpose of the company's activity (RIR/99, arts. 305 and 307, and IN SRF No 11/96, art. 25).

What are the assets that cannot be the object of depreciation?

According to RIR/99, art. 307, sole paragraph and its clauses, depreciation quota is not allowed in respect of:

From which moment can depreciation be ascribed in the results of a legal entity?

Whatever the form of registering this charge may be, during quarterly or annual accounting, the depreciation quota can be deductible as an operating cost or expense only from the month in which the asset is installed, put into usage or in conditions of production ( RIR/99, art. 305, paragraph 2).

Can an asset in the warehouse awaiting installation be the object of depreciation?

The asset can only be depreciated after installation, put into usage or in conditions of production (RIR/99, art. 305, paragraph 2).

Can a company that has been using for the asset, depreciation rates lower that allowed as deductible while calculating actual profit, use higher rates in order to adjust accumulated depreciation to the normal rate?

Quota above that usually used is allowed provided the taxpayer proves the suitability of the quotas adopted in terms of the usage of the asset in adverse conditions in a determined period and not due to simple \"recovery\", respecting the limits, minimum and maximum rates, established by tax legislation (PN CST Nr. 79/76).

How to calculate the depreciation quote on assets used in mining and forest exploration?

The depreciation quota that ca be registered in each base period, on assets used exclusively in mining, and forest exploration, whose total exploration period is lower than the useful life of these assets, can be determined optionally, in terms of the period of concession or the contract of exploration or even, of the volume of production of each calculation period and its relation to the known thickness of the mine or size of the explored forest, (RIR/99, art. 309, paragraph 3).

How to calculate the rate of depreciation in case of group installation or equipment?

When the registration of the fixed assets is done together with installation or equipment, without sufficient specification to allow application of the different rates of depreciation according to he asset class, and the taxpayer not having elements to justify the rates for the group, he must use the rates applicable to assets of the group with the highest useful life (RIR/99, art. 310, paragraph 3).

Knowing that depreciation quota is not allowed for land, how to proceed when the accounting record of the property built has added the construction amount to the value of the land?

Highlighting that only buildings and constructions rented or used by the owner for production can be the object of depreciation, when the land value is not separated from the value of construction, the same must be highlighted separately so that a deduction is allowed for depreciation from the value of construction or building. For this, the taxpayer can use the technical report to determine that the installment accounted corresponds to the value of the building or construction, applying on this, the coefficient of the depreciation effectively borne, limited, for tax purposes, to that allowed for this type of asset (PN CST Nr.14/72).