Depreciation allowance: how to read and calculate it?

Updated March 2026 - The depreciation expense accounts for the wear and tear or consumption of a fixed asset over time. It is not an immediate cash outflow, but a charge that smooths the cost of an asset over its useful life. Poorly managed, it distorts the result, penalises the tax reading of the file and creates balance sheet anomalies that accumulate from year to year.

It allows the cost of an asset to be matched to its economic use over several financial years. This is a key point for producing more accurate accounts and avoiding overloading a single period at the time of purchase.

The principle: a fixed asset gradually loses value. The entry cost — meaning the purchase price plus accessory costs — is spread over the estimated useful life. Each year, a fraction of this cost is recorded as an expense: this is the depreciation charge.

To go further, see also Declining balance depreciation and Tax return definition.

• the depreciable base: entry cost minus any residual value;
• the useful life: generally based on actual use or fiscally accepted durations;
• the method chosen: straight-line, declining balance or component-based.

In practice, the annual charge depends on the entry cost, any residual value and the duration retained.

Many business owners confuse:

• the purchase of the asset (actual cash payment);
• the cash outflow (treasury flow);
• the annual accounting charge (depreciation).

Depreciation deals with time of use, not payment. A machine purchased for €50,000 in January does not impact the result by €50,000 in year one if it is depreciated over 5 years: the annual charge will be €10,000. This difference between cash and accounting result explains why a profitable company can have tight cash flow — or conversely.

Hayot Expertise tip: depreciation is often one of the first line items to review when a result seems too flattering or, conversely, when fixed assets have been poorly tracked over several periods.

The depreciation charge reduces the accounting result for the period. It can therefore also influence the tax reading of the file. For corporate tax purposes, straight-line depreciation is generally deductible within fiscally accepted durations. Depreciation that is too short may be clawed back; insufficient depreciation may deprive you of a legitimate deduction.

Straight-line depreciation#

This is the standard method. The depreciable base is divided by the useful life to obtain a constant annual charge. A company vehicle purchased for €25,000 and depreciated over 5 years: charge of €5,000 per year.

Declining balance depreciation#

Reserved for professional equipment under certain tax conditions. The charge is higher in the first years and decreases thereafter. It is tax-advantageous early in the asset's life. The multiplier coefficient depends on the fiscal duration: 1.25 for a 3–4 year life, 1.75 for 5–6 years, 2.25 beyond that.

Component-based depreciation#

For complex assets — a building, industrial equipment — it is sometimes compulsory to identify components (structure, roof, technical installations) and depreciate each according to its own duration. This gives a more faithful image but is heavier to manage.

These durations are indicative and may vary by sector, actual use and options retained by the company.

In 2026, the dematerialisation of software assets and SaaS licences raises specific questions: an annual subscription is not a fixed asset, but acquired software is.

This arises when the fiscally accepted duration is shorter than the actual useful life. You depreciate in the accounts over the real life (e.g. 8 years) but fiscally over the accepted duration (e.g. 5 years). The difference is recorded in regulated provisions. It is a temporary gap that unwinds over time and has a direct impact on the balance sheet and equity analysis. Errors here are a frequent source of mistakes in the French tax return schedules 2055 and 2056.

Priority items to audit:

1. The durations retained: are they consistent with actual use? Durations that are too long under-depreciate assets and overstate the result.
2. The depreciable base: have all acquisition costs been properly included (transport, installation, commissioning costs)?
3. Disposals: when an asset is retired, the net book value must be written off. An oversight generates ghost assets on the balance sheet.
4. Consistency with the tax return: the fixed asset schedule must be perfectly reconciled with depreciation entries for the period.
5. Components: for complex assets, has the decomposition been done and kept up to date?