Guides · Bookkeeping
Depreciation basics
Depreciation spreads the cost of a long-lived asset — a machine, a vehicle, a fit-out — across the years it is actually used, rather than charging it all in the year it is bought. It keeps the books honest about how value is consumed.
Why cost is spread
An asset used for years should not land its whole cost on a single year's accounts. Depreciation charges a portion each year, matching the cost to the periods that benefit from the asset.
Without it, a big purchase would crush one year's profit and flatter the following years, giving a misleading picture of both.
The common methods
Two common approaches are the straight-line method, which charges an equal amount each year, and the written-down-value method, which charges more early and less later. Each suits different assets.
The rates and the method allowed can differ between accounting and tax, and they change from time to time, so confirm the current position for your assets.
How Lekha fits
Lekha records the purchase of an asset and the bill behind it, which is the starting point a depreciation calculation works from. It records and tracks; it does not compute your depreciation.
Lekha records what your documents say and tracks the money on both sides — what you owe and what you are owed. It records and tracks; it does not replace your accountant.
Questions
- What is depreciation?
- Spreading the cost of a long-lived asset across the years it is used, charging a portion each year rather than the whole cost in the year of purchase.
- What are the common depreciation methods?
- The straight-line method charges an equal amount each year; the written-down-value method charges more early and less later. Confirm the method and rate allowed for your case.
- Why does depreciation matter?
- It matches an asset's cost to the years that benefit from it, so a big purchase does not distort a single year's profit and flatter the rest.
This guide is general information, not legal or tax advice. Confirm the current rules and your own circumstances for any specific case.