> ## Documentation Index
> Fetch the complete documentation index at: https://help.agatabo.com/llms.txt
> Use this file to discover all available pages before exploring further.

# Asset Depreciation

> Understanding depreciation and asset valuation in Agatabo

## What is Depreciation?

**Depreciation** is the accounting process of allocating the cost of a fixed asset over its useful life. As assets age and lose value (equipment wears out, technology becomes obsolete), depreciation expense is recorded to reflect this declining value.

## Depreciation in Agatabo

<Warning>
  **Important**: Agatabo does not currently track depreciation automatically. Fixed assets are recorded at their acquisition cost and remain at that value on the Balance Sheet.
</Warning>

### Why Depreciation is Not Tracked

Agatabo is designed for tontines and small financial organizations where:

* Asset depreciation is often not required for operational reporting
* Most organizations have relatively few fixed assets
* Tax depreciation schedules vary by country and regulation
* Manual depreciation tracking can be complex and error-prone

### What This Means for Your Organization

When you record a fixed asset in Agatabo:

1. **Initial Recording**: Asset appears at acquisition cost
   * Example: Laptop purchased for 850,000 RWF appears as 850,000 RWF

2. **Over Time**: Value remains unchanged
   * One year later: Still shows 850,000 RWF on Balance Sheet
   * Five years later: Still shows 850,000 RWF (even if laptop is now worth much less)

3. **Disposal**: When asset is removed, full original value is reversed
   * Deleting the laptop removes 850,000 RWF from Fixed Assets

<Note>
  **Accounting note**: This is called the **cost method** or **historical cost basis**. Assets are carried on the books at their original purchase price without adjustment for depreciation.
</Note>

## If You Need Depreciation Tracking

If your organization requires depreciation schedules for regulatory, tax, or reporting purposes, you have several options:

### Option 1: External Spreadsheet

Maintain a separate depreciation schedule in Excel or Google Sheets:

<Steps>
  <Step title="Export asset list">
    Export your fixed assets from Agatabo (if export feature available)
  </Step>

  <Step title="Create depreciation schedule">
    Calculate annual/monthly depreciation for each asset
  </Step>

  <Step title="Update annually">
    Track accumulated depreciation separately
  </Step>

  <Step title="Adjust reports">
    Manually reduce asset values when preparing year-end financial statements
  </Step>
</Steps>

**Example depreciation calculation (straight-line method)**:

| Asset     | Cost              | Useful Life | Annual Depreciation  | Accumulated After 3 Years | Book Value After 3 Years |
| --------- | ----------------- | ----------- | -------------------- | ------------------------- | ------------------------ |
| Laptop    | 850,000 RWF       | 5 years     | 170,000 RWF/year     | 510,000 RWF               | 340,000 RWF              |
| Desk      | 150,000 RWF       | 10 years    | 15,000 RWF/year      | 45,000 RWF                | 105,000 RWF              |
| **Total** | **1,000,000 RWF** | -           | **185,000 RWF/year** | **555,000 RWF**           | **445,000 RWF**          |

### Option 2: Manual Journal Entries

For more formal accounting, record depreciation using manual journal entries:

<Steps>
  <Step title="Calculate depreciation expense">
    Determine monthly or annual depreciation for each asset category
  </Step>

  <Step title="Create manual journal entry">
    Debit: Depreciation Expense<br />
    Credit: Accumulated Depreciation
  </Step>

  <Step title="Record at period-end">
    Post entry at month-end or year-end
  </Step>
</Steps>

[Learn about manual journal entries →](/tontines/general-ledger/manual-journal-entries)

<Warning>
  **Limitation**: Even with manual journal entries, Agatabo does not have a dedicated "Accumulated Depreciation" contra-asset account in the ledger account role enum. The system has no `ACCUMULATED_DEPRECIATION` or `DEPRECIATION_EXPENSE` ledger roles. You would need to use generic expense accounts or track depreciation entirely outside Agatabo.
</Warning>

### Option 3: Use External Accounting Software

For full depreciation tracking with multiple methods (straight-line, declining balance, units of production):

* Export asset data from Agatabo
* Import into accounting software (QuickBooks, Xero, Wave, etc.)
* Use their built-in depreciation calculators
* Maintain two parallel systems (Agatabo for operations, accounting software for financial reporting)

## Common Depreciation Methods

If tracking depreciation externally, common methods include:

### Straight-Line Depreciation

**Formula**: (Cost - Salvage Value) / Useful Life

**Example**: 850,000 RWF laptop, 50,000 RWF salvage value, 5-year life

* Annual depreciation: (850,000 - 50,000) / 5 = 160,000 RWF/year

**Best for**: Equipment with consistent usage (furniture, computers)

### Declining Balance Depreciation

**Formula**: Book Value × Depreciation Rate

**Example**: 850,000 RWF laptop, 40% declining rate

* Year 1: 850,000 × 40% = 340,000 RWF
* Year 2: 510,000 × 40% = 204,000 RWF
* Year 3: 306,000 × 40% = 122,400 RWF

**Best for**: Assets that lose value quickly (vehicles, technology)

### Units of Production Depreciation

**Formula**: (Cost - Salvage Value) / Total Units × Units This Period

**Example**: 2,000,000 RWF vehicle, 200,000 RWF salvage, 100,000 km expected

* Per km: (2,000,000 - 200,000) / 100,000 = 18 RWF/km
* Drove 15,000 km this year: 15,000 × 18 = 270,000 RWF depreciation

**Best for**: Assets with measurable usage (vehicles, machinery)

## Typical Asset Useful Lives

Reference guide for common depreciation periods:

| Asset Type                            | Typical Useful Life        |
| ------------------------------------- | -------------------------- |
| Computers & Laptops                   | 3-5 years                  |
| Office Furniture                      | 7-10 years                 |
| Vehicles                              | 5-8 years                  |
| Buildings                             | 20-40 years                |
| Office Equipment (printers, scanners) | 5-7 years                  |
| Land                                  | Infinite (not depreciated) |

<Note>
  **Note**: Actual useful life depends on usage, quality, and local tax regulations. Consult an accountant for tax-specific depreciation schedules.
</Note>

## Reporting Impact

### Balance Sheet

Without depreciation tracking:

* Fixed Assets shown at full acquisition cost
* Overstates asset value over time
* Net worth appears higher than economic reality

**Example without depreciation**:

```
Fixed Assets: 5,000,000 RWF (original cost)
```

**Example with proper depreciation** (after 3 years):

```
Fixed Assets: 5,000,000 RWF
Less: Accumulated Depreciation: (1,800,000 RWF)
Net Fixed Assets: 3,200,000 RWF
```

### Profit & Loss Statement

Without depreciation:

* No depreciation expense shown
* Net income overstated
* Does not reflect true cost of using assets

## Best Practices

<Note>
  **Asset valuation tips:**

  * Keep purchase receipts and documentation for all assets
  * Note expected useful life in asset description when recording
  * Review asset list annually - dispose of assets no longer in use
  * If external depreciation tracking is required, set up system before year-end
  * For audits, explain that assets are valued at historical cost (not depreciated)
  * Consider physical asset inventory count annually to verify existence
  * Document asset condition and functionality in descriptions
</Note>

## Need Help?

<CardGroup cols={2}>
  <Card title="Adding Fixed Assets" icon="plus" href="/tontines/fixed-assets/adding-fixed-assets">
    Record new assets
  </Card>

  <Card title="Asset Disposal" icon="trash" href="/tontines/fixed-assets/asset-disposal">
    Remove disposed assets
  </Card>

  <Card title="Manual Journal Entries" icon="pen" href="/tontines/general-ledger/manual-journal-entries">
    Record depreciation manually
  </Card>

  <Card title="Balance Sheet" icon="scale-balanced" href="/tontines/reports/balance-sheet">
    View fixed assets on reports
  </Card>
</CardGroup>