MYOB Training

The value of our assets is not a fixed number that never changes. Just as stocks can change in terms of how much they are worth, so can your more tangible possessions such as your car, house or computers. When you buy something new Say, for example, you buy a new laptop in 2010 for $2000. If you tried to sell it in 2013, it probably wouldn't even fetch half of what you bought it for. The value of that asset would have reduced, in part because of ware and tear on the computer from use, but also because of the rate at which technology has advanced past the technology used in your laptop. This dropping in value is known as depreciation, and understanding how it works, how it applies to your business and how to calculate are crucial skills in analysing the value of your business. A simple MYOB course  will show you how to use the program to do the sums, but before you take off, you need to understand a bit more about depreciation methodology.

The full picture

The first reason you need to understand the way your assets depreciate and how quickly they do so is to give you a clear indication of exactly where your business stands financially.     If you plan to apply for financing, make investments or go into partnership, you'll need to have a realistic understanding of the actual value of your assets, not simply a sum of the amounts for which they were acquired. While it's always prudent to know the exact state of your financial affairs, this becomes crucial if your business plans to involve an outside party like a bank.

Tax Purposes

Depreciation doesn't always have to be a bad thing. everything depreciates in value (even our bodes as we get older!) but knowing how to factor depreciation into your taxes can be valuable. When you are filing your taxes you account for the expense of depreciation on your assets. If your car has depreciated $4000 in value, this is a reduction on your taxable profits, which means a possible increase on your return.

Straight Line Depreciation:

A simple depreciation method is straight line depreciation. The way this method works is by dividing the original cost of the asset by the number of years of use you could realistically get out of the asset, which are usually pre-decided by accounting standards. If an asset is worth $100,000 and has a life of 10 years (and wouldn't be worth anything as scraps),  the depreciation base will be $100,000 and the rate would be 10% (100%/10) which gives $10,000 of depreciation expense for the year.

Declining Balance Depreciation:

This method is used to calculate the depreciation of an asset when it typically depreciates more in after the first year and then slower thereafter. This is particularly applicable with a car, which loses the biggest portion of its value the moment it is purchased, moving from the 'new car' to the 'used car' category as soon as money has change hands.

Once you've decided on a method and understand why it's important to calculate depreciation, learn MYOB  or another accounting program. It'll make the calculations easy and better still, they'll be automatically included with your other accounting figures!