Why depreciate at all?
A vehicle bought in year one is used for years. Charging the whole cost to one period distorts that year’s accounts and hides the cost of using the vehicle later. Depreciation spreads the cost across the years of use, so each period shows a fair share.
For donor-funded assets there is a second reason. Donors want to know that equipment bought with their money still exists, is still in use for the project and is being treated consistently.
What are the key terms?
- Cost. What you paid, including delivery and set-up, less any discount.
- Useful life. How long you expect to use the asset, in years.
- Residual value. What it will be worth at the end, if anything.
- Depreciable amount. Cost minus residual value.
- Book value. Cost minus the depreciation recorded so far.
How does straight-line depreciation work?
It is the simplest and most common method.
- Take the cost.
- Subtract the residual value.
- Divide by the useful life in years.
Annual depreciation = (cost − residual value) ÷ useful life.
A worked example: a project vehicle costs 30,000. You set a useful life of 5 years and a residual value of 5,000.
- Depreciable amount: 30,000 − 5,000 = 25,000.
- Annual depreciation: 25,000 ÷ 5 = 5,000.
- Book value after year 1: 25,000. After year 3: 15,000. After year 5: 5,000.
Use the same method for each asset class, and write the lives in your policy. For instance, you might set one life for computers and another for vehicles.
How do donor rules change this?
The grant agreement decides what the donor accepts as a cost. Donors differ:
| Donor approach | What it means for you |
|---|---|
| Funds the full purchase price | The cost is charged to the grant when bought; you still keep the asset on the register |
| Accepts depreciation over the grant period | A share of the cost is charged each period |
| Restricts use or disposal of assets | You must track location and use, whatever your accounting method |
Read the agreement, ask the donor if it is unclear, and note the answer on the file. Laws and accounting frameworks differ by country, so check with your auditor.
What records do you need?
For each asset, keep the purchase file, the register entry, the useful life and method, and a yearly depreciation line. Our article on keeping an asset register lists the fields. Without a clean register, depreciation cannot be calculated correctly.
What happens at disposal?
When you sell, give away or scrap an asset, record the date, the book value at that point and any proceeds. Check the grant agreement before you act, because many donors require approval, or want proceeds returned or reused. After a grant closes, some conditions still apply, so keep the records.
What about assets that are part-funded? If two grants paid for one asset, record the share each funder paid, and apply the donors’ rules to each share. Check whether the donors want the use of the asset split in a stated way. Record the split and the agreement on the file.
What if the useful life turns out wrong? If a vehicle is still running well after its planned life, or fails early, review the estimate. Change it going forward, with a note, and follow your accountant’s advice on how to treat the change. Do not rewrite past years without advice.
What should a short depreciation policy say? Keep it to one page: the value threshold for registering an asset, the method, the useful life for each class, the residual value rule, when depreciation starts, and who approves disposals. A short, clear policy applied each year is better than a long one nobody follows.
How do depreciation and the asset register work together? The register tells you what exists, where it is and what it cost. Depreciation turns cost and age into a book value. If the register is wrong, the depreciation will be wrong too. Review the register first each year, then run the depreciation, and keep a short note of anything you changed. This order saves rework and makes the numbers easier to explain to an auditor.
Where EMPOBase fits
In EMPOBase, Asset Depreciation is part of Logistics & SCM, next to the Assets register. The ledger is built for projects, grants and restricted funds. It is not statutory accounting and does not produce country filing formats, so confirm with your accountant how depreciation reaches your statutory books. The useful lives and methods are your policy decisions. See the platform overview for the wider set of modules.