Fixed Assets Depreciation Plan

 Requirements

Basic legal requirements are laid down in the art. 17, Art. 31-32 of Accounting Act – see extract below. 

The basic principles of depreciation regarding tax law are regulated by art. 16a-16m of the Corporate Income Tax Act. Regulations concerning the accounting law are included in the Accounting Act,. 

Depreciation rules 

The value of a new fixed asset is not recognized directly in costs. Its value is spread over time in accordance with the agreed method and rate. Depreciation has been recognized both in the tax law and in the Accounting Act as mentioned above. 

Pursuant to the Accounting Act (Art.32), depreciation or redemption write-offs on a fixed asset are made by means of a systematic, planned distribution of its initial value over a fixed period of depreciation. Depreciation begins not earlier than after the fixed asset is accepted for use, and its end no later than when the value of depreciation is equalized with the initial value of the fixed asset or intended for liquidation, sale or finding its shortage, possibly taking into account the net sale price of the remaining fixed asset at liquidation. When determining the depreciation period and the annual depreciation rate, the economic useful life of the fixed asset is taken into account, which is determined in particular by: 

• the number of shifts the fixed asset is working on; 

• pace of technical and economic progress; 

• the performance of the fixed asset, measured by its hours of operation or by the number of products produced, or by another appropriate measure; 

• legal or other limitations on the period of use of the fixed asset; 

• the expected net selling price of the material remnant of the fixed asset at liquidation. 

As at the date of acceptance of the fixed asset for use, the period or rate and method of its depreciation should be determined. The correctness of the applied periods and rates of depreciation of fixed assets should be periodically verified by the entity, resulting in an appropriate adjustment of depreciation write-offs made in subsequent financial years. 

For fixed assets with a low initial unit value (low-grade assets), depreciation can be determined in a simplified way, by making costs posting in to opex for groups of assets similar in type and purpose. 

According to the tax law, depreciation starts from the first day of the month following the month in which the fixed asset was introduced for use in business operations until: 

• its initial value equals the value of depreciation, 

• will be sold or given away, 

• will be withdrawn or liquidated from the register of fixed assets. 

Depreciation methods 

In the light of the tax law: 

• the straight-line method, 

• the degressive method, 

• the individual method, 

• as well as the one-time depreciation method are distinguished. 

Straight-line depreciation consists in making depreciation write-offs according to a fixed annual depreciation rate specified in the list of depreciation rates. In the case of the degressive method, which can be used for fixed assets from groups 3-6 and 8 KŚT and means of transport, excluding passenger cars, in the first tax year of their use at the rate specified in Annex 1 to the Act increased by a factor not higher than 2, 0. 

The individual method assumes a situation in which depreciation write-offs are made through equal contributions from the initial value of the fixed asset, and their rate is determined individually by the taxpayer. In the case of individual depreciation, the depreciation period may not be shorter than: 

• for fixed assets included in groups 3-6 and 8 KŚT: 

• 24 months > when the initial value of a given fixed asset does not exceed PLN 25,000, 

• 36 months > when the initial value is higher than PLN 25,000 and does not exceed PLN 50,000, 

• 60 months > In other cases; 

• for means of transport, including passenger cars > 30 months 

• for buildings (premises) and structures > 40 years. 

A one-off depreciation write-off should be included in operating costs at the end of the month in which a given fixed asset was put into use or in the month following the month of accepting the asset for use. In addition, a one-off depreciation charge can be applied to all fixed assets whose initial value is equal to or lower than PLN 10,000 net. 

Depreciation keys are included in the attachment 1 to Corporate Income Tax Act.