Depreciation
The systematic allocation of the cost of a fixed asset over the years of use, as an expense in the P&L. It reflects the loss in value through use and obsolescence.
What does depreciation mean?
The systematic allocation of the cost of a fixed asset over the years of use, as an expense in the P&L. It reflects the loss in value through use and obsolescence.
The depreciation method spreads the depreciable amount over the estimated useful life. The economic life and residual value must be realistic. An impairment is a separate assessment when value falls.
How does it work?
Depreciation is mandatory on every fixed asset with a limited useful life (art. 2:386(4) DCC), also in a loss-making year: depreciation is charged regardless of the result (paragraph 1). You estimate the useful life and the residual value, choose a method and explain it in the notes (paragraph 2). Depreciation begins when the asset is available for its intended use, not on ordering or payment (RJ 212). Land generally has no limited useful life and is then not depreciated.
If an asset consists of parts with different lives, such as the body and the refrigeration unit of a lorry, you depreciate them separately (RJ 212). If you later adjust the useful life or residual value, that is a change in estimate: only the current year and future years change (RJ 145).
Example
A BV buys a CNC machine on 1 July 2025 for € 48.000 excluding VAT and pays € 2.000 for installation. The cost is € 50.000, the residual value € 5.000, the useful life five years. The depreciable amount is € 45.000, so € 9.000 a year. In 2025 the machine is in use for six months: 6/12 × 9.000 = € 4.500. Journal entry: depreciation expense € 4.500 debit, accumulated depreciation machines € 4.500 credit. Book value at the end of 2025: € 45.500; at the end of 2026: € 36.500.
In the annual accounts
Expense in the P&L and lower book value of fixed assets on the balance sheet.
Difference from impairment
Depreciation is planned: it follows a schedule chosen in advance over the useful life. An impairment (bijzondere waardevermindering) is unplanned: it follows an event, such as damage or a lost sales market, as a result of which the book value is no longer recovered (art. 2:387(3) DCC). After such a write-down you spread the lower amount over the remaining useful life.
Common mistakes
- Starting depreciation only on payment
- Not updating the residual value when expectations change
What to look out for
- Keep the purchase date, cost, residual value and useful life per asset in an asset register; the total agrees with the balance sheet. The depreciation calculator works out a schedule.
- For tax purposes a ceiling of 20% of the purchase cost per year applies, and a building is not depreciated below its WOZ value (art. 3.30(2) and art. 3.30a Wet IB 2001, the Dutch Income Tax Act 2001). Small and micro entities that choose tax bases carry those amounts over into the annual accounts.
- In the by-nature model, depreciation appears on a separate line (art. 2:377(3)(h) DCC); in the by-function model it is spread over cost of sales, selling costs and general and administrative costs (paragraph 4).
Legal basis and source
art. 2:386 DCC
Frequently asked questions
When do you start depreciating?
From the moment the asset is available for its intended use. A machine delivered in November but only installed and tested in February is depreciated from February.
Is depreciation an expenditure?
No. The expenditure took place at purchase. Depreciation is an expense without payment; that is why the cash flow statement under the indirect method adds it back to the result.
Must you depreciate if the asset rises in value?
Yes, as long as its useful life is limited. Depreciation spreads the cost over the years of use and does not measure market value. A higher estimated residual value does reduce the amount you still depreciate.
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