What is Depreciation?
Calculating the annual wear and tear rate of fixed assets with tangible value and determining it as an expense is called depreciation. It includes tangible assets such as immovables and infrastructure (plumbing, roads, etc.). It is mostly calculated as annual depreciation value and recorded in the expense section of the ledger.
Under the Tax Law, the maximum depreciation amount can be 20% of the value of the property. Taxpayers can show depreciation as an expense, provided that the determined depreciation rate is not exceeded. Determining the amount and processing it as an expense is called depreciation.
Depreciation is subject to the conditions determined by the Ministry of Finance. If the usage exceeds one year, is subject to wear and tear, is ready for use as recorded in the inventory, and exceeds the value ratio specified by the Ministry of Finance, depreciation can be made. Taxpayers do not make the depreciation calculation at the time they buy the immovable. If the usage exceeds one year, they are recorded in the “Paid Fees and Other Expenses” section.
Three methods are used for calculating depreciation: diminishing balances, straight-line depreciation, and extraordinary depreciation. In the straight-line depreciation method, the expense is calculated annually. The value of the valuable real estate is divided by its economic life and the depreciation amount is determined.
The diminishing balance method is mostly used for accumulated depreciation. In this method, expenses decrease over time. Extraordinary depreciation is used to calculate expenses due to natural disasters.
