Information about Income TaxInformation about Income Tax>No.12013 Overview of depreciation

No.12013 Overview of depreciation

I purchased a vehicle for business use for one million yen in March 2016. Can this amount be collectively accounted for as expenses?

Assets whose value decreases over time, such as buildings and vehicles, are called depreciable assets.

The expenses incurred for acquiring depreciable assets are not collectively accounted for as necessary expenses. Instead, depreciation expenses calculated based on the useful life of the asset will be the necessary expenses for each year.

The useful life and depreciation rate for calculating depreciation expenses according to the useful life are stipulated in the Ordinance of the Ministry of Finance.

However, assets with a usable period of less than one year or with an acquisition cost of less than 100,000 yen will be fully accounted for as necessary expenses in the year of acquisition.

If the asset was acquired after April 1, 2007
  Straight-line method Declining-balance method
Characteristics In principle, depreciation expenses will be the same every year. The amount of depreciation expenses is largest in the first year and declines for the following years.
However, once the depreciation amount calculated using the depreciation rate under the declining-balance method falls below the "guaranteed depreciation amount," depreciation expenses will be the same for the remaining years.
Calculation method Acquisition cost × Depreciation rate under the straight-line method Undepreciated balance × Depreciation rate under the declining-balance method ("depreciation amount before adjustment")
However, once the above amount falls below the guaranteed depreciation amount, the following formula will be applied for the remaining years: Revised acquisition cost × Revised depreciation rate
(Note 1) If assets were acquired or demolished during the year, the applicable amount will be obtained by dividing the above amount by 12 and then multiplying by the number of months in which the asset was used in business that year.
(Note 2) The guaranteed depreciation amount refers to the amount calculated by multiplying the acquisition cost of the asset by the guarantee rate according to its useful life.
(Note 3) Revised acquisition cost represents the undepreciated balance at the end of the year in which the depreciation amount before adjustment first falls below the guaranteed depreciation amount.
(Note 4) Revised depreciation rate refers to the depreciation rate revised according to the useful life of the asset so that the depreciation amount will correspond to the revised acquisition cost.

The depreciation rate, revised depreciation rate and guarantee rate to be used in calculating the depreciation amount of a depreciable asset acquired after April 1, 2007 are stipulated in Appended Tables 8, 9 and 10 of the Ministerial Ordinance concerning the Useful Life, etc., of Depreciable Assets.

The calculation of depreciation amount for the example above is as follows:
Straight-line method April 1, 2007 through acquisition 1,000,000 × 0.167 × 10 / 12 = 139,617 yen
Declining-balance method Year 1 1,000,000 × 0.333 × 10 / 12 = 277,500 yen
Year 2 (1,000,000 − 277,500) × 0.333 × 12 / 12 = 240,593 yen

* 0.333 = Depreciation rate of assets acquired after April 1, 2012, with the useful life of six years

There are two depreciation methods: the declining-balance method and the straight-line method. While the straight-line method is designated for individuals, the declining-balance method may be selected after submitting an application.

<<Reference>>
If the asset was acquired before March 31, 2007
  Former straight-line method Former declining-balance method
Characteristics In principle, depreciation expenses will be the same every year. The amount of depreciation expenses is largest in the first year and declines for the following years.
Calculation method Acquisition cost × 90% × Depreciation rate under the former straight-line method (Multiplication of 90% is not necessary for intangible assets such as fishing right and patents.) Undepreciated balance × Depreciation rate under the former declining-balance method
Undepreciated balance represents the amount obtained by deducting the total amount of depreciation expenses up to the previous year from the acquisition cost.
(Note 1) If assets were acquired or demolished during the year, the applicable amount will be obtained by dividing the above amount by 12 and then multiplying by the number of months in which the asset was used in business that year.
(Note 2) Depreciation method for buildings acquired after April 1, 1998 is limited to the former straight-line method (or the straight-line method for a building acquired after April 1, 2007).
(Note 3) Depreciation method for building improvements and structures acquired after April 1, 2016 is limited to the straight-line method.
(Note 4) After the year following the year in which up to 95% of the acquisition cost has been depreciated, depreciation expense will be obtained by deducting one yen from the book value at the beginning of the year and dividing it by five, and equal depreciation will continue until one yen remains (effective from the year 2008).