Group depreciation - characteristics of the method

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When running a business, entrepreneurs often purchase low-value fixed assets. When their value exceeds PLN 3,500 net, they are subject to depreciation. But what if we have many fixed assets below this amount? The entrepreneur has the option of depreciating such fixed assets, combining them into one highly valued fixed asset and then recognizing it in costs on the basis of depreciation write-offs. This is group depreciation. In this article, you'll find answers on how to perform group depreciation.

Depreciation - definition

Depreciation is a process related to the loss of value of fixed assets through their physical wear (resulting from exploitation) and economic wear (mainly the result of technological progress).

In the Polish legal system, the issues related to depreciation are regulated by three legal acts:

  • Act of July 26, 1991 on personal income tax (PDOF),

  • the Act of February 15, 1992 on corporate income tax (PDOP),

  • Act of September 29, 1994 on accounting.

Fixed assets, intangible assets, investments in external fixed assets, buildings, structures on someone else's land, other assets not constituting the property of the taxpayer, but meeting the conditions for considering them as fixed assets with an expected useful life longer than one year, used for depreciation are subject to depreciation. for the purposes related to the conducted business activity or put into use on the basis of a lease, rental or leasing agreement (Article 22a of the PDOF Act and Article 16a of the PDOP Act).

Types of depreciation

There are several different methods of depreciation from which the taxpayer has the right to choose the one that suits him best. These are i.a. depreciation:

  • linear,

  • degressive,

  • natural,

  • progressive,

  • revenue margin,

  • estimated,

  • group.

What is group depreciation?

Group depreciation is a depreciation method in which a group of assets with a similar use in the enterprise, a similar initial value and a similar useful economic life is redeemed. This method usually applies to objects of low unit value (not exceeding PLN 3,500).

Legal aspect of group depreciation

The Income Tax Act does not provide for, but also does not exclude, grouping the same, low-value fixed assets. They only talk about the right to withdraw from depreciation in general, relating the expenses incurred for their purchase directly to the tax deductible costs in the month when they were put into use or by making a one-time depreciation write-off in the month of putting them into service or in the next month (Article 22d of the PDOF Act). and Article 16d of the PDOP Act).

However, the possibility of making such deductions is provided by Art. 32 (6) of the Accounting Act, from which it follows that for fixed assets with a low initial unit value, depreciation or amortization write-offs can be established in a simplified manner, by making collective write-offs for groups of assets similar in type and purpose or by writing off the value of this type of fixed assets on a one-off basis.

Group depreciation - advantages and disadvantages

In the group method, a common depreciation base is determined for several groups of similar type and purpose, and collective write-offs are made from them, while in the case of individual depreciation, separate depreciation bases and rates are established for each asset.

The group method is simpler as it does not require the application of detailed procedures for estimating the useful life of each fixed asset. Its disadvantage may be difficulties in determining the residual (residual) value of an individual asset at the time of its sale or liquidation. With the individual method, this value is known for each period of use of the fixed asset. Another disadvantage of group depreciation is that it does not reflect the economic reality.

From the legal point of view, the choice of the group depreciation method is admissible and, despite the lack of indication in tax acts, it should not be questioned by the tax authorities. When choosing the group depreciation method, it should be remembered that it is a simplified form that ensures simplicity and not an accuracy of reflection of reality.