What Decides the Depreciation Rate to Set for Industrial Plant and Equipment Assets?

Plant and equipment depreciation rates vary depending on the operational situation of the asset and the tax laws that apply to your company. Your physical asset depreciation rate is more an accounting decision than an engineering decision. The engineering aspect in the asset depreciation rate choice is deciding how long is the asset life of each specific equipment item.

 


 

Hello Mike,

I want to know how we calculate the depreciation of the value of equipment. Want is done on other sites, we apply an depreciation rate of 8 percent per year?

 


 

Dear Diaw,

You need to talk to your company accountant. There are tax rules that you must follow.

Depreciation is the annual allowance of the new asset value that you set, in order to know how much money to put aside each year, so that you can replace the asset with a new one when its working life is depleted.

Depreciation is a great idea. In theory it is like keeping a piggy-bank into which you stuff money for a rainy day. The rainy day arrives when the life of the physical asset expires and it is no longer economically worth keeping. The money you have been collecting in the piggy bank is then taken out to buy a new asset that replaces the old one.

Asset depreciation rate depends on industry and on the equipment service. There is no standard value for physical asset depreciation rate. Your accountants need to decide the length of time over which an asset gets old enough to be replaced. Typically they ask an engineer familiar with the plant operation to make that estimate.

In high attrition industries the depreciation rate for plant assets is as short as three years. In more gentle industries asset life may be used up in ten years, some businesses with static equipment, like above ground tanks, might allow 50 years for depreciation of that asset.

You may even have to depreciate different pieces of plant at different rates.

There is straight line depreciation rate and there is accelerated rate of depreciation and there are other forms as well that the Taxation Department may allow.

It is a decision that each business must make for itself and be able to justify that choice to the Taxation Department.

Your accountants should be able to ask the Taxation Department what is acceptable for a type of asset.

I hope the above is useful in addressing your question on setting industrial plant and equipment asset depreciation rate values.

 

My best regards to you,

Mike Sondalini
Managing Director
Lifetime Reliability Solutions HQ

 

P.S. If you require advice on industrial asset management, industrial equipment maintenance strategy, defect elimination and failure prevention or plant and equipment maintenance and reliability, please feel free to contact me by email at info@lifetime-reliability.com

 

The CEO, Executive, Manager, and Engineer Who Wants Their Enterprise Asset Management and Maintenance Systems to Get World Class Reliability and New Profits

Click to view

Free PDF Book on the Plant & Equipment Wellness Way to World Class Reliablility
Plant and Equipment Wellness Free PDF Book and learn about Plant Wellness Way EAM methodology

 

Click this link to download the free 299-page Plant and Equipment Wellness PDF book and templates on how to get world class reliable operating assets

Free Videos on the Plant & Equipment Wellness Way to World Class Reliability

Click this link to
get free access to 14 hours of Plant Wellness Way videos.

Now, Build an EAM System and Life-Cycle Processes that Get World Class Reliability and Profits

Quickly build an EAM system that ensures a lifetime of world class reliability and utmost operating profits from outstandingly reliable operating assets

Industrial and Manufacturing Wellness Book with the complete Plant Wellness Way EAM methodology

You can get Industrial and Manufacturing Wellness: Life Cycle Enterprise Asset Management for World Class Reliability at Industrial Press and Amazon Books.

5 Free Downloads for World Class Reliability the Plant Wellness Way

Click to View

Online Store Catalog of World Class EAM, Maintenance, and Reliability Strategy, Training and Solutions

Click to View

All Online Training Courses for World Class EAM, Maintenance, and Reliability Success

Click to View