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6.2. Depreciation and Amortization

Business assets which diminish in value through wear and tear are entitled to depreciation. The standard depreciation method is the straight line method.

Accelerated depreciation applies to machinery and equipment used for industrial manufacturing, handling, and transport operations when their useful life is greater than 5 years and they are used exclusively for industrial manufacturing, handling, hotel, telephone, transport, or agricultural operations. For the machinery and equipment in question, the amount of the first depreciation expense is doubled. Subject to conditions, companies may depreciate new machinery and equipment using the declining balance method. Under this method, the depreciation rate is obtained by multiplying the straight line rate by a coefficient the rate of which depends on the useful life of the asset: 1.5 where the useful life is 3 to 4 years, 2 if the useful life is 5 or 6 years, and 2,5 if useful life is 7 years or more.

Depreciation up to the straight line must be booked also in loss years, in which case the loss caused by the compulsory depreciation may be carried forward indefinitely. Land an intangible assets are generally not depreciable.

Examples of straight line depreciation rates include the following:

Commercial and Industrial Buildings  5%
Plant and Machinery  10% to 33.33%
Office Equipment  15%
Motor Vehicles  20% to 33.33%