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ISSN: 2146-4138
Special Issue for “Theory and Practice of Organizational and Economic Problems of Territorial Development and the Effectiveness of
Social and Economic Systems”
Kuban State Agrarian University, Krasnodar, Russian Federation, 2Kuban State Agrarian University, Krasnodar,
1
Russian Federation, 3Kuban State Agrarian University, Krasnodar, Russian Federation, 4Southern Institute of Management,
Krasnodar, Russian Federation. *Email: Riban1@mail.ru
ABSTRACT
Depreciation is a complex economic category, the essence of which is manifested in the duality: This cost element, and its own source of reproduction
of fixed assets and intangible assets. The depreciation laid relationship with asset and liability balance sheet; it touches on aspects such as formation
costs, taxation issues, and reproductive process. That is why a methodological study of the depreciation essence, the allocation of the classification
of bases, principles and functions seems urgent. In a study of a structured approach to the treatment of depreciation, developed fourteen grounds of
classification, allowing to consider a category from different perspectives. Particular attention is paid to communication of depreciation or amortization,
depreciation allocated classification. Principles of depreciation and highlighted the functions performed are designed to create a more complete
picture of the depreciation. Thus, the methodological aspects of the depreciation that promote, further, formation of a technique of creation and use
of a sinking fund.
Keywords: Amortization, Depreciation, Wear, Reproduction Process, Classification, Principles, Functions
JEL Classification: M41
Depreciation is one of the most difficult economic categories: We shall consider the essence of this category in all its diversity.
1. Contractive article regulates the value of fixed assets and
intangible assets of the balance sheet (deducted when 2. RESEARCH METHODOLOGY
receiving core indicator). In this sense, the depreciation is
cost element (in the allocation of cost elements), or included Depreciation is governed by a significant number of regulations.
in the calculation of articles (with itemized cost division). In Depreciation is characterized descriptively, thus it does not
this part, depreciation affects the cost, the reliability of the contain a clear definition of this concept. In connection with the
financial statements, taxation processes. orientation of the RF fiscal accounting system, the most complete
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Sigidov, et al.: Methodological Aspects of Depreciation as an Economic Category
characterization of depreciation is given in the Tax Code (article Table 1: Classification of depreciation
256 of the Tax Code). At the same time, depreciation summary Basis of classification Types of depreciation
is not disclosed. Communication categories Depreciation and wear are synonyms
of “amortization” and Depreciation and wear ‑ different
In the analysis of regulatory documents on accounting, it becomes “wear” concepts
apparent that depreciation is used in many documents, but never By models Static
provides a clear definition of this category. Dynamic
By levels Macroeconomics
IFRS (IAS) 16 “fixed assets” reflects that depreciation - is a Mesoeconomics
systematic allocation of the depreciable value of the asset over Microeconomics
By spheres Fiscal
the useful life (Vernon, 2013).
Financial
Accounting
In most sources, the term “amortization” is translated from Latin By phases Depreciation
as “repayment” (Amortisatio). Proceeds of sales
Getting cash from customers
The complex nature of the depreciation (a kind of duality: Part of Sinking fund
the cost and re-source), a change in form (goods - money - goods), By the economical For commercial
leads to a multiplicity of definitions. subject organizations ‑ Depreciation
For non‑commercial ‑ wear
Let us consider the basic definitions, as reflected in the economic By the nature of the The first subtype:
literature (Figure 1). reproductive process Simple reproduction
Extended reproduction
Thus, the depreciation can be characterized as: The second sub‑type:
• A gradual transfer of fixed assets under the influence of With the assistance of paid sources
processes of wear to the cost or expenses of the period. Without the involvement of paid sources
• The formation of the fixed capital reproduction financing By amortized Fixed assets
source in the transformation of depreciation in the form of accounting objects Intangible assets
money. Natural resources
According to the Tactical account
planning horizon Strategic account
3. RESULTS AND DISCUSSIONS According to the Legal
concepts of depreciation Economic
Classification of depreciation is presented in Table 1. Financial
Fiscal and Finance
I. Interconnection of depreciation and wear Investment
By uniformity linear
Two polar points of view can be distinguished: Nonlinear
• Depreciation and wear are synonyms (found in many In relation to the Continuous
textbooks of post-Soviet period, as well as in a number of volume of production Discrete
As the possibility of Accumulated
training manuals on economic analysis);
forming a sinking fund Factual
• Depreciation and wear are a completely different concepts;
• Consider the factors that affect the appearance of wear
(Table 2). • The principle of matching revenues and expenses (for example,
object to the preservation, but inevitably Amortization out,
Wear can have two types of effects: although not depreciated).
• Technical - performance degradation;
• Economic - reduction in value of the object during its It must be remembered that depreciation and wear are different
operation. concepts. Wear (physical and moral) - belongs to the field
of objective reality, depreciation - cost concept, the result of
To characterize wear we will hold its classification (Table 3). subjective accounts abstractions. The following communication
options wear and depreciation (Table 5) can be identified.
The essence of the selected types of wear are present in Table 4.
It is necessary to stop at the first classification in more detail.
There are several reasons worthy of recognition, proving that
depreciation and wear are not synonymous: Obsolescence can be viewed from the following perspectives:
• Discrepancy in time of the objective processes of wear a. Social - obsolescence due to the inability to meet social
and depreciation (accelerated depreciation accrual does requirements, increased due to the emergence of more
not mean the acceleration of the processes of physical advanced facilities, plant and equipment of this kind;
deterioration); b. Environmental - obsolescence due to the inability to meet the
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Sigidov, et al.: Methodological Aspects of Depreciation as an Economic Category
requirements of environmental protection, natural resource Figure 2: The three stages of physical wear
management, etc. (Bolshuhina, 2015);
c. Environmental factors (e.g., the proximity of sewage treatment
plants, or, on the contrary, socially important objects, and
others).
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Sigidov, et al.: Methodological Aspects of Depreciation as an Economic Category
III. Macroeconomics, meso-economics, microeconomics Table 5: Variations due wear and depreciation
Aspect Details
Depreciation is charged in the framework of the economic The accounting Fixed assets wear out, without any connection
entity (microeconomics), but the generalization performance of aspect with the amortization process;
individual organizations leads to macro-level data. Consider two When calculating depreciation is taken into
aspects of the use of depreciation at the macro level (Figure 4). account the physical and moral wear;
The accumulated depreciation is fully
IV. By areas (Table 6) consistent wear object.
By the flow rate Depreciation is a higher rate than the physical
V. In Phases: wear (useful life, in this case, can be set lower
than the life span, such as moral wear object);
Depreciation reflects the processes wear;
a. Depreciation;
Depreciation goes at a slower pace than wear.
b. The revenues provided the profitability of activities;
c. The renovation fund.
Table 6: Classification by fields of depreciation
VI. On economic subject Sphere Transcript
Fiscal Used for tax purposes, i.e., calculation of the tax
Commercial organizations charge depreciation (depreciation - a base in accordance with the Tax Code of the Russian
source of reproduction of fixed assets), un-profit (funded Federation.
by budgetary allocations) - wear (i.e., depreciation for these Tax records should be considered:
organizations - is the degree of deterioration of the non-current The narrow sense ‑ to calculate the taxable profits
assets) (Lytneva et al., 2011). for the purpose of Chapter 25 of the Tax Code;
The broadest sense ‑ to calculate all kinds of
VII. The nature of the reproduction process (Table 7) taxes (Kruglyak and Kalinskaya, 2016)
Financial It is used in financial calculations (including in the
Circuit of fixed capital is reflected in Figure 5. field of management accounting)
Accounting It is used in the financial account balance
Thus, depreciation takes the following form:
• The use of fixed assets (taking into account the degree of • Amortization of depreciation (cost element or component of
moral and physical wear); the article calculation);
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Sigidov, et al.: Methodological Aspects of Depreciation as an Economic Category
• Sinking fund (renovation fund) - the source of the reproduction Table 8: Classification of depreciation on depreciable
of fixed assets. objects
Term Source Transcript
In the context of inflationary depreciation spiral is not enough Depreciation Glossary of It applies to fixed assets
for the purchase of new fixed assets, will inevitably have to Amortization Management It applies to intangible assets
involve retained earnings and liquidation of accumulation (the Depletion Accountants Depreciation of natural resources
funds received on the disposal of fixed assets) or paid sources (the so‑called exhaustible resources ‑
of funding. According to some authors (Ovsiychuk and Demin, natural gas, coal, oil, wood, etc.)
2010), should be involved not retained, and the net profit. Depletion Dictionary Tax credit, resolving the owner of
allowance of modern natural resources deduct from their
However, it is methodologically wrong. From the standpoint of
economic gross income reduction in the cost
accounting theory, only the retained earnings can be directed to theory of non‑renewable resources such as
the reproduction of fixed assets. minerals, oil or gas
• Linear - calculated according to the straight-line method; • Discrete - depreciation, which were credited to the gaps caused
• Express - is charged at an increased rate (Medvedev, 2008). by, for example, a translation into the conservation.
XII. With respect to the volume of production (Table 10). XIV. To the possibility of forming a sinking fund:
XIII. XIII to the degree resolution: • Gross - value reflected contractive loan account 02
“depreciation of fixed assets;”
• Continuous - depreciation, accrued from the date of receipt of • Actual - depreciation, transformed into a sinking fund in
the object to its disposal, for any reason, including liquidation; connection with the receipt of revenue from customers in cash.
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Sigidov, et al.: Methodological Aspects of Depreciation as an Economic Category
Amortization is always greater than the actual due to work in • Strategy is a plan to achieve long-term goals in the renewal
progress and the remnants of unsold products. and modernization as the acceleration of scientific and
technological progress, plant and equipment production;
The following principles (Table 11) were isolated by depreciation • The combination of the tactics and methods of the operational
study as an economic category. mechanism of their effects on the company’s depreciation
policy. (Bukhalkov and Safronov, 2008).
Depreciation performs a number of functions (Table 12).
The depreciation policy is not an end in itself in the company’s
The most important element of the concept of amortization is accounting and analytical field. It must be remembered that it should
depreciation policy, which should be considered in the context be formed taking into account the financial condition of the company
of industry-specific organizations in the unity of the strategic and in close connection with fiscal, financial and investment policies.
tactical aspects.
Depreciation tools - part of organizational and economic tools and
Amortization policy must fit into the overall strategy and tactics indicators to meet the criteria of efficiency of use of fixed capital
of the company. It should be remembered that: (Bukhalkov and Safronov, 2008). The amount and composition of
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Sigidov, et al.: Methodological Aspects of Depreciation as an Economic Category
Table 12: Depreciation functions The work can be structured terminological field, organize the
Function Elaboration diversity of points of view presented in the economic literature.
Compensating Turnover function of fixed capital (wear In the future, attention should be paid to the methodological
and obsolescence compensation) is aimed at elaboration of the reproductive process; procedures of reflecting
registration on a systematic basis the impairment the depreciation fund to accounting system.
of fixed assets and the formation of the fund,
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