How to account for and calculate depreciation of used fixed assets

Methods and formulas for calculating depreciation of fixed assets (fixed asset depreciation), accounting for depreciation of fixed assets and depreciation rates of used fixed assets…

I. How to calculate the original price of used fixed assets

According to Circular 45/2013/TT-BTC dated April 25, 2013, it is stipulated that:

• The original cost of a tangible fixed asset is all the costs that an enterprise must pay to own a tangible fixed asset up to the time the asset is put into a ready-to-use state;
• Original price of tangible fixed assets (including new or used fixed assets): Is the purchase price (+) taxes payable (for example: special consumption tax, environmental tax… excluding refundable taxes such as VAT) (+) other costs incurred to put the fixed assets into a state ready for use such as: loan interest incurred during the construction, investment or purchase of fixed assets; transportation and unloading costs; upgrading costs; installation and testing costs; registration fees and other directly related costs.

➥ Conclusion: 

(*): Actual purchase price is the purchase price stated on the invoice (excluding VAT).

Example 1: 

Consulting service company fdiinvietnam.com bought a used professional photocopier from another unit, the invoice value was 38 million VND, the shipping cost was 2 million VND.

➥ Original price of used photocopier = 38 + 2 = 40 million VND.

II. Formula and method for calculating depreciation of used fixed assets

According to current accounting standards, there are 3 methods of depreciation of fixed assets:

• Straight-line depreciation method;
• Adjusted declining balance depreciation method;
• Depreciation method based on quantity and volume of products.

Most businesses choose the straight-line depreciation method, so in this article, fdiinvietnam.com will only analyze the straight-line depreciation method.

a. Level for annual depreciation of fixed assets using the straight-line depreciation method:

In there:

• The depreciation period of used fixed assets is calculated as follows:

• The fair value of a fixed asset is the purchase price or the remaining value of the fixed asset or the value assessed by organizations with valuation functions (in cases of being given, donated, gifted, or granted, transferred) and many other cases;
• The depreciation period for new fixed assets of the same type will be determined according to Appendix 1 issued with Circular 45.

b. Monthly depreciation rate of fixed assets using the straight-line depreciation method:

For the month in which fixed assets increase: 

Example 2:

Continuing example 1 above, consulting service company fdiinvietnam.com has:

The method for calculating depreciation of fixed assets and accounting for fixed assets is as follows:

• The fair value of the photocopier (purchase price) is: 38 million VND;
• The selling price of a 100% new photocopier of the same type on the market is: 76 million VND;
• The depreciation frame of a new photocopier of the same type according to Circular 45 is: From 6 years to 10 years (fdiinvietnam.com chooses 6 years).

➥ The depreciation period of the used photocopier fdiinvietnam.com purchased is: (38 / 76) x 6 = 3 years;

Annual depreciation rate = (Original cost of asset / Depreciation period of asset) = 40 / 3 = 13,333,333;

➥ Monthly depreciation expense = 13,333,333 / 12 = 1,111,111.

III. How to account for depreciation of used fixed assets

➤ When purchasing fixed assets for the company to account for:

Debit account 211: Fixed asset purchase price, fixed asset purchase cost;

Debit account 1331: Input VAT;

There are accounts 112, 331…: Total value on invoice

➤ Every month the company calculates depreciation expenses:

Debit account 154, 641, 642: Depreciation value of that month (depending on the purpose of use for which department, it will be recorded in that account);

Credit account 214: Depreciation value of that month.

Note: Before a business depreciates fixed assets, it must register the fixed asset depreciation method with the tax authority.

Registration form:

IV. Frequently asked questions about how to calculate depreciation of used fixed assets