How is depreciation of fixed assets calculated?

Q: What do you need to calculate depreciation?

Initial cost: all costs of acquiring the fixed asset and preparing it for use (purchase price, delivery, installation) Useful life: the period over which the entity expects to use the asset, or the volume of output (work, services) it expects to obtain from it Residual value: the amount expected to be received from disposing of the asset at the end of its useful life, net of disposal costs. If it is immaterial, it may be disregarded. Depreciation method: the entity must state it in its accounting policy Depreciable amount = Initial cost − Residual value.

Q: When does depreciation start and when does it stop?

Under NAS No. 5, depreciation is charged from the date the asset is recognised as a fixed asset and put into operation. It stops when the depreciable amount has been fully recovered or when the asset is derecognised (written off the balance sheet). Depreciation is charged regardless of whether the entity made a profit or a loss. During the reporting year it is charged monthly at 1/12 of the annual amount (the units-of-production method being the exception).

Q: Which fixed assets are not depreciated?

NAS No. 5 gives the complete list: Land plots and other natural resource assets (water, subsoil and other natural resources) Productive livestock Library and information collections Fixed assets placed under conservation (mothballed) in the prescribed manner Museum items Tangible cultural heritage objects Public roads, footpaths, promenades, alleys and landscaping facilities managed by local government authorities Fully depreciated fixed assets

Fixed assets such as buildings, equipment, computers or vehicles are used for several years and gradually wear out. Recognising this wear and tear as an expense in monetary terms is called depreciation. In other words, the cost of a fixed asset is charged to expenses in portions over the years during which it is in service.

In Uzbekistan, accounting for fixed assets is governed by NAS No. 5 "Fixed Assets" (NAS: Uzbekistan's National Accounting Standards, known locally as BHMS). Its current version took effect on 1 January 2025. Accumulated depreciation is recorded in account 0200 "Depreciation of fixed assets". This is a contra-asset account: it reduces the cost of fixed assets carried in account 0100 and thus shows their carrying (net book) value.

What do you need to calculate depreciation?

Initial cost: all costs of acquiring the fixed asset and preparing it for use (purchase price, delivery, installation)
Useful life: the period over which the entity expects to use the asset, or the volume of output (work, services) it expects to obtain from it
Residual value: the amount expected to be received from disposing of the asset at the end of its useful life, net of disposal costs. If it is immaterial, it may be disregarded.
Depreciation method: the entity must state it in its accounting policy

Depreciable amount = Initial cost − Residual value.

When does depreciation start and when does it stop?

Under NAS No. 5, depreciation is charged from the date the asset is recognised as a fixed asset and put into operation. It stops when the depreciable amount has been fully recovered or when the asset is derecognised (written off the balance sheet).

Depreciation is charged regardless of whether the entity made a profit or a loss. During the reporting year it is charged monthly at 1/12 of the annual amount (the units-of-production method being the exception).

Which fixed assets are not depreciated?

NAS No. 5 gives the complete list: 1. Land plots and other natural resource assets (water, subsoil and other natural resources) 2. Productive livestock 3. Library and information collections 4. Fixed assets placed under conservation (mothballed) in the prescribed manner 5. Museum items 6. Tangible cultural heritage objects 7. Public roads, footpaths, promenades, alleys and landscaping facilities managed by local government authorities 8. Fully depreciated fixed assets

What methods are available?

NAS No. 5 provides for four methods: two basic and two accelerated. Accelerated methods are used where an asset is used intensively or where equipment becomes obsolete quickly.

Method	Type	Essence in brief
Straight-line	basic	an equal amount every year
Proportional to work performed (units of production)	basic	the more it works, the more depreciation
Double-declining balance	accelerated	more in the early years
Sum-of-the-years' digits (cumulative)	accelerated	more in the early years, decreasing over time

Different methods may be applied to different types of fixed assets, but only one method is applied to assets of the same type (by make or model).

Method 1: How does the straight-line method work?

The most widely used and simplest method: the same amount is charged every year.

Formula: Annual depreciation = Depreciable amount ÷ Useful life (years).

Example. A company bought a computer for 24 000 000 soum. Its useful life is 4 years and its residual value is 0. - Annual depreciation: 24 000 000 ÷ 4 = 6 000 000 soum - Monthly depreciation: 6 000 000 ÷ 12 = 500 000 soum - Annual rate: 100% ÷ 4 = 25%

Method 2: How does the units-of-production method work?

This method suits assets whose wear depends on how much they are used: kilometres for a truck, number of items for a machine tool.

Formula: Depreciation per unit = Depreciable amount ÷ Expected total output over the useful life.

Example. A truck has an initial cost of 300 000 000 soum and a residual value of 20 000 000 soum. It is expected to cover 400 000 km over its useful life. - Per 1 km: (300 000 000 − 20 000 000) ÷ 400 000 = 700 soum - If it covered 5 000 km in a month: 5 000 × 700 = 3 500 000 soum

Method 3: How does the double-declining balance method work?

The straight-line rate is multiplied by 2 and applied each year to the carrying amount at the beginning of the year. Depreciation stops when the carrying amount equals the residual value.

Example. The same 24 000 000 soum computer with a useful life of 4 years. The straight-line rate is 25%, so the double rate is 50%.

Year	Carrying amount at start of year	Depreciation	Carrying amount at end of year
1	24 000 000	12 000 000 (50%)	12 000 000
2	12 000 000	6 000 000 (50%)	6 000 000
3	6 000 000	3 000 000 (50%)	3 000 000
4	3 000 000	3 000 000 (remaining balance, author's solution)	0

Under paragraph 41 of NAS No. 5, with this method the residual value is not deducted from the initial cost, and depreciation stops when the carrying amount becomes equal to the residual value. A pure 50% rate would give only 1 500 000 soums in year 4 and leave 1 500 000 soums on the books. That is why the table writes off the whole remainder in the final year: this is not a rule of the standard but a practical solution shown by the author. It is best to record such an approach in the company's accounting policy.

Method 4: How does the sum-of-the-years' digits (cumulative) method work?

Each year's share is determined by a fraction: the numerator is the number of years remaining until the end of the useful life, and the denominator is the sum of the sequence numbers of the years of useful life.

Example. The same computer, 4 years. Denominator: 1 + 2 + 3 + 4 = 10.

Year	Share	Depreciation
1	4/10	9 600 000
2	3/10	7 200 000
3	2/10	4 800 000
4	1/10	2 400 000
Total	10/10	24 000 000

Over four years a total of 24 000 000 soum is depreciated. This is the same under every method; only the allocation across years differs.

What journal entry records depreciation?

Depreciation is credited to the relevant sub-account in the 0200 group, for example 0250 for computers. The debit depends on where the asset is used:

Where the fixed asset is used	Debit	Credit
In a production workshop	2510 General production overheads	0200
In administration (e.g. the accounting department's computer)	9420 Administrative expenses	0200
In the sales department (e.g. shop equipment)	9410 Selling expenses	0200

Example. Monthly depreciation of the accounting department's computer: Dr 9420 – Cr 0250, 500 000 soum.

Is accounting depreciation the same as tax depreciation?

Not always. In accounting, depreciation is calculated under NAS No. 5 and the entity's accounting policy. For corporate profit tax purposes, the rules and maximum rates set by the Tax Code apply. If the two differ, an adjustment is made in the tax computation. Check the current tax rates in the latest version of the Tax Code.

Summary

Depreciable amount = initial cost − residual value
Depreciation starts from the date the asset is recognised and put into operation
The monthly amount is 1/12 of the annual amount (except under the units-of-production method)
There are four methods; the chosen method is stated in the accounting policy
Land, productive livestock and 6 other categories are not depreciated
Depreciation accumulates on the credit side of account 0200
Tax depreciation may differ from accounting depreciation