The fixed assets of the enterprise are understood, first of all, the premises and equipment that is used for the production of products. Fixed assets are subject to replacement as they are physically and morally worn out.
The concept of depreciation of fixed assets of an enterprise
Fixed assets include the material resources of the enterprise, which are not consumed in one production cycle. The fixed assets of the enterprise serve for years and are gradually subject to wear and tear, which is understood as the gradual loss of their value.
Depreciation of fixed assets of an enterprise is a decrease in their initial cost. This is due to the gradual destruction of equipment during the production process or its obsolescence. Depreciation of fixed assets in accounting is reflected together with depreciation each month.
Types of depreciation of fixed assets
There are two types of depreciation of fixed assets of the enterprise - physical and moral. Physical deterioration is the loss of consumer qualities by equipment and premises. Distinguish between physical wear of the first and second kind. In the first case, the deterioration of the means of production occurs as a result of their exploitation. The degree of such wear depends on the intensity of the use of capital resources and increases with the growth of production.
Physical deterioration of fixed assets of the second kind is the destruction of idle means of production under the influence of climate or due to improper operation and poor maintenance. If the first type of physical wear and tear is economically justified and inevitable, then the second type is an example of inefficient use of resources.
The decrease in the value of fixed assets of the enterprise may not be associated with the loss of their consumer qualities. In this case, the concept of obsolescence is used. There are two forms of it. The growth in the efficiency of production of capital goods is the cause of obsolescence of fixed assets of the first kind. It is caused by the appearance of cheaper means of labor. Obsolescence of the second kind arises from the improvement of the means of production, which become more efficient and reliable. For this reason, the value of old equipment is decreasing.
Both forms of obsolescence of enterprise assets arise as a result of technical progress. From an economic point of view, they are fully justified, since obsolete means of production are being replaced by more advanced ones. However, for a particular enterprise, the obsolescence of assets means a significant increase in production costs.
