Assets & depreciation: all you need to know!

We’ll cover all the basics (and then some)

What are business assets?

A business asset is an item of value owned by the business and they can come in many forms. They can be physical, tangible goods, such as vehicles, real estate, computers, office furniture, and other fixtures, or intangible items, such as intellectual property, patents, and trademarks. Assets are purchased and used to generate income or to add value to your business. Business assets are split into two sections on the balance sheet: Current assets and Non-current (Fixed) assets.

Current and Non-current assets, what's the difference?

Business assets are split into two sections on the balance sheet: Current assets and Non-current (Fixed) assets.

Current assets

Are business assets that will be sold or turned into cash within one year

Examples are:

  • Cash & Bank accounts: money you have on hand either in cash or in your bank account/s
  • Inventory that will be sold to customers
  • Accounts receivable: money expected by customers
  • Prepaid expenses like annual insurance policies or software subscriptions

These assets may only have value for a short while, but they are still treated as business assets.

Non-current assets

Also called fixed or long-term assets, are expected to provide value for more than one year. In other words, the business does not intend to sell these assets within 12 months.

Examples are:

  • Property & buildings
  • Equipment
  • Vehicles

When you buy a non-current or fixed asset over the value of R7000, you need to add it as a business asset in your business’s asset register

What is depreciation?

Depreciation is what happens as a business asset loses value over time. A laptop, for example, depreciates (decreases) in value from the day you buy it. As you use the laptop each year, the value decreases until it’s worth nothing and you will need to replace it.

Depreciation is a business expense

When you buy an asset, like a laptop for example, you cannot expense the entire purchase value of that laptop straight away, you have to spread out the cost of the laptop over its expected lifespan. The value your assets have lost during the year is how much you're able to expense a year.

For example: You buy a laptop for R30 000 and the useful life of that laptop is 3 years. Each year your laptop depreciates by R10 000 until the value is worth R0. Every year you deduct that R10 000 depreciation from your profit as a business expense.

What assets can be depreciated?

For most businesses, only non-current assets can be depreciated, including office equipment, furniture, computers, machinery, and so on. One non-current (fixed) asset that is exempt from depreciation is land, which appreciates (increases) in value over time.

Methods of calculating depreciation

If you use stub when you add an asset to your asset register we will automatically calculate your assets' depreciation, so you don’t have to worry about all the calculations. Neat huh?

Straight-line depreciation: The simplest calculation that is used the most by small businesses. With straight-line depreciation, the value of your asset depreciates by the same amount each year until the value is zero.

Example: You buy a new lawn mower for your landscaping business for R30,000 and the expected useful life is 5 years. Using the following equation, R30,000(asset value) / 5(useful life) = R6,000. So you’d claim a R6,000 depreciation expense a year for 5 years on your lawn mower.

Diminishing value depreciation: With diminishing-value depreciation, depreciation for a given year is calculated based on how much the asset is still worth. This means that the amount of depreciation you can claim every year will change based on the asset’s current value in that particular year.

Example: Let’s stick with our lawn mower. For the first year, your depreciation will be R30,000(asset value) / 5(useful life) = R6,000(Depreciation for the 1st year). In the second year, your depreciation diminishes (decreases), using the following equation, R30,000(asset value when you bought it) - R6,000(1st year’s depreciation) = R24,000(current asset value) / 5(useful life) = R4,800 and so on.

Assets & depreciation don’t need to be complicated

Depreciation can seem like a complex topic (and it often is). However, stub can simplify your asset management and crunch the numbers for you quickly so you don’t have to worry.

How to add assets to stub

It’s super simple - trust us.

All you need to do is:

  1. Make sure you are on stub’s Pro Plan
  2. Log in to your stub profile
  3. Head on over to your Asset Register (The place that houses all your assets in stub) and once you’re there it’s a simple step-by-step process to add your business assets.

We will also automatically calculate your depreciation for you so you don’t have to. All are easily editable of course if you want to take matters into your own hands.

What is Asset disposal?

In a nutshell, asset disposal is when you get rid of an asset, either by selling it, trading it in, or scrapping it. In other words, you are compensated in some way for the asset you are getting rid of. When you sell, trade or scrap an asset you need to update your accounting records, by disposing of the asset. You can't just delete it from your asset registry.

It’s important to keep track of the assets you have and the assets you have disposed of as the worth of your assets affects your balance sheet. It’s all part of keeping your accounting records shiny and up to date.

Some of the most common reasons why your business might want to dispose of an asset:

  • The value of your asset has depreciated to 0: Once an asset has served its purpose you will probably need to replace it, so you will dispose of the old one to replace it with a new one.
  • It’s outdated: As technology advances, sometimes you may have to replace an asset with a more modern or updated version.
  • It's costing you more to fix an asset than it is to just replace it: You might decide to replace an asset when it's costing you more to repair or maintain it than it would be to replace it.
  • You don't need it anymore: You may decide to dispose of an asset you no longer have use for, even if it’s still in good working order.
  • An asset gets stolen or lost: If an asset is stolen or lost you write it off verses disposing of it. This means you can't sell or trade it.

In stub, you can easily dispose of your assets and we will adjust your books for you and update your balance sheet so you don't have to worry.

Profits or losses made when you sell an asset

When you decide to sell an asset you may be able to make a profit when you sell it and sometimes you may make a loss and you need to know what that means for your business.

If you make a profit (you sell it for more than you originally bought it for), you are taxed on the profit you have made on it.

Example: You buy a laptop for R30 000 and when you sell it, you can sell it for R32 000. You made a R2000 profit which you will be taxed on.

If you make a loss (you sell it for less than what you bought it for), you can

Example: You buy a laptop for R30 000 and when you sell it, you can sell it for R25 000. You made a R5000 loss which will be added as a tax-deductible expense for your business.