Contents
- What is depreciation?
- Methods of depreciation
- Intangible assets and depreciation
- Depreciation and pricing
- Return on marketing investment (ROMI)
What is depreciation?
Depreciation is the process of reducing the value of assets such as property or equipment due to physical wear and tear. It is an important tool in accounting that allows for accurate determination of product costs and calculation of corporate tax. Assets subject to depreciation include:
- The cost exceeds 100,000 rubles;
- The useful life is more than 12 months.
For example, if a laptop costs 120,000 rubles and has a lifespan of 24 months, the depreciation will be 6,000 rubles per month. The lifespan of assets is determined in accordance with the Government Resolution on the classification of fixed assets. In private clinics, depreciation charges constitute a significant part of the service cost, as companies invest in expensive diagnostic equipment, leading to increased prices for clients.
Methods of depreciation
There are several methods of depreciation, each with its own characteristics and applied depending on the nature of the asset:
- Straight-line method;
- Declining balance method;
- Sum-of-the-years'-digits method;
- Units of production method.
It is important that the method of depreciation is recorded in accounting and tax records. The most common and understandable method is the straight-line method, which demonstrates the even distribution of the asset's cost over its useful life.
Intangible assets and depreciation
Intangible assets, such as websites, advertisements, or patents, are also subject to depreciation provided that their cost exceeds 100,000 rubles and their useful life is more than one year. These assets do not have a physical form but provide economic benefits to the enterprise. To account for an intangible asset on the balance sheet, it is necessary to include a clause in the contract regarding the transfer of exclusive rights to the client.
Marketers need to understand how depreciation affects pricing and the effectiveness of marketing investments. For example, if an entrepreneur produces badges, they must account for the depreciation of the equipment to correctly set the product price and calculate the cost.
Depreciation and pricing
Consider an example: an entrepreneur produces wooden badges using a laser machine that costs 600,000 rubles. The machine's lifespan is 5 years, which means that depreciation will be 10,000 rubles per month. If 1,000 badges are produced during this period, the cost of each will increase by 10 rubles. Thus, if badges are sold for 100 rubles, the entrepreneur will make a profit of 72.50 rubles for each badge.
However, if only 100 badges are produced, the cost will rise to 117.50 rubles, resulting in losses. This highlights the importance of accounting for depreciation to achieve profitability: it is necessary either to raise prices or to increase sales volume.
Return on marketing investment (ROMI)
The depreciation of marketing assets also plays a significant role in assessing the effectiveness of marketing expenditures. For example, to calculate the return on marketing investment (ROMI), the following formula is used:
ROMI = (Revenue - Marketing Expenses) / Marketing Expenses * 100%
If a company orders a website costing 1,200,000 rubles for two years, it is impractical to account for the entire amount at once when assessing profitability. The cost of the website should be spread over 24 months, which amounts to 50,000 rubles per month. This approach will allow for a more accurate assessment of the effectiveness of marketing investments. It is also important to consider additional expenses for hosting and administering the website to obtain more reliable profitability data.