Depreciation schedules are supplementary documents typically found in a company’s reported financial statement disclosures. They contain information on the type of assets the company is depreciating, as well as its depreciation style, asset salvage value, asset useful life, and other pertinent information. A schedule usually exists for each asset or group of assets owned by the company. Accountants can also use these schedules to document their actions during a financial audit or to reconcile internal depreciation schedules with required tax depreciation information.
Three pieces of information are important for depreciation schedules: asset book value, salvage value, and useful life. The book value is the price paid for the asset. Companies may include freight, installation, or additional setup costs for the asset in the historical book value. This allows the company to avoid expensing these items as period costs. The salvage value is the price a company would receive for the asset in the open market. Companies may have no salvage value for equipment if they plan to use equipment until no value is left.
The useful life listed on depreciation schedules is usually found in standard accounting principles. This ensures some consistency among all companies depreciating assets, although they can use different methods to depreciate the items on their accounting books. For highly specialized or unique assets, accountants may need to figure a useful life based on manufacturer specifications, production managers who work with the equipment on a daily basis, and other production factors within the company.
Large organizations and publicly held companies are common preparers and users of depreciation schedules. They frequently use large-scale equipment in their operations that help them produce goods and services. Investors of these organizations also have an interest in depreciation schedules. Depreciation is a non-cash expense that reduces a company’s net income. Investors may desire to review how long the company expects to depreciate assets, as this will reduce the earnings per share of the company, which affects the company’s stock price.
A depreciation schedule may also be something that auditors review for tax purposes. Auditors must ensure the company is properly reporting depreciation and using an acceptable method. Companies can gerrymander their depreciation schedule in order to take more expense early on, thereby reducing their current tax liability. This goes against tax standards, as governments expect companies to follow predetermined depreciation figures that create a consistent depreciation expense for all companies reporting a certain class of equipment or machine deprecation.
