Depreciation charge: calculation, balance sheet impact, common pitfalls (2026)

The depreciation charge is one of the most structurally significant lines in a balance sheet, yet one of the least well understood by business owners. It involves no cash outflow in the year it is recognised, but it reduces profit, changes the net book value of fixed assets, and feeds directly into self-financing capacity. Poorly calibrated, it distorts the picture the accounts give. Well handled, it is a management tool.

In brief. The depreciation charge represents the fraction of a fixed asset's cost allocated as an expense in a given financial year, in accordance with the French General Chart of Accounts (Plan comptable général, ANC regulation 2014-03). It is certain in amount and follows a predetermined schedule, which fundamentally distinguishes it from a provision.

When a company acquires a fixed asset — a machine, a vehicle, software, a building — it cannot expense the full cost in the year of purchase. The French Commercial Code (art. L123-12 et seq.) and the PCG require that cost to be spread over the estimated useful life of the asset: this is the matching principle applied to durable assets.

The depreciation charge is the annual expense that translates this progressive loss of value into accounting terms. It is irreversible and certain: unlike a provision, its amount and rhythm do not depend on an uncertain event. It is recorded each year regardless of any associated cash flows.

Why this matters for a business owner:

• It reduces the accounting profit — and therefore the corporate tax base within fiscally accepted limits.
• It reduces the net book value (NBV) of fixed assets on the balance sheet.
• It feeds the calculation of self-financing capacity (CAF), since it is a non-cash charge: CAF = net profit + depreciation and provisions (common simplified formula).
• It underpins the cash flow statement and the multi-year view of capital expenditure.

Our view (Hayot Expertise). In the files we handle, the depreciation charge is often the first line to revisit when a profit figure seems unusually low or unusually flattering. A depreciation plan poorly constructed at company formation generates anomalies that accumulate silently from year to year.

Step 1: determine the depreciable base#

The depreciable base is the entry cost of the asset minus any residual value.

Entry cost includes:

• the purchase price net of recoverable taxes (HT for VAT-registered entities);
• directly attributable ancillary costs: transport, installation, non-recoverable customs duties, commissioning costs.

The residual value is what the company expects to recover when the asset is retired, net of disposal costs. In practice it is usually zero for standard assets (equipment, vehicles, furniture) but can be material for specialised assets.

Example: machine purchased for €60,000 HT, transport and installation costs €2,400 HT, estimated residual value nil. Depreciable base = €62,400.

Step 2: choose the useful life#

The duration retained must reflect the actual economic useful life of the asset for the company, not merely the fiscal durations. In practice, the durations accepted by the French tax administration are the standard reference.

These durations are indicative and may be adjusted by sector, actual use and company policy. Too long a duration under-depreciates the asset and overstates profit. Too short a duration may be challenged by the tax administration.

Step 3: apply the method and calculate the rate#

Straight-line method (default method):

• Annual rate = 100% ÷ useful life in years.
• Annual charge = depreciable base × rate.
• In the first year, if the asset is acquired part-way through the financial year, the charge is calculated pro-rata temporis (in days).

Declining balance method (tax option, new qualifying equipment, CGI art. 39 A):

• Declining rate = straight-line rate × fiscal multiplier (1.25 for a 3–4 year life; 1.75 for 5–6 years; 2.25 beyond 6 years).
• The calculation base is the opening NBV (not the original cost).
• When the straight-line rate over the remaining life exceeds the declining rate, the company switches to straight-line.
• For a full treatment of this method, see our article Declining balance depreciation.

Component method (PCG, compulsory for complex assets):

When an asset contains elements with significantly different useful lives, each component must be depreciated separately. Typically, a building is broken down into structure (50 years), roof (20–25 years), technical installations (10–15 years), interior fittings (10 years). This gives a more faithful picture but requires individual tracking of each component.

Worked example — straight-line method#

Machine purchased for €60,000 HT, useful life 5 years, nil residual value, acquisition on 1 January.

• Depreciable base: €60,000
• Straight-line rate: 100% ÷ 5 = 20%
• Annual charge: €60,000 × 20% = €12,000

After year 5, the NBV is zero. The machine stays on the balance sheet (gross value €60,000, accumulated depreciation €60,000, NBV €0) until it is sold or scrapped.

Annual journal entry:

• Debit 6811 "Depreciation charges on fixed assets": €12,000
• Credit 2815 (or relevant class 28 account): €12,000

No. This is one of the most important points to understand, and one of the most frequent sources of confusion in conversations with business owners.

The distinction between cash and accounting expense:

Buying the machine for €60,000 drains the bank account at payment. But it is the annual €12,000 charge that hits profit each year for 5 years. There is no additional cash outflow in the year of each depreciation entry.

Direct consequence: self-financing capacity (CAF)

It is precisely because depreciation is a non-cash charge that it is added back in the CAF calculation:

CAF (simplified additive method) = Net profit + depreciation and provisions − reversals of depreciation and provisions − net disposal gains

A company can therefore generate positive self-financing capacity while showing modest net profit, provided it carries heavily depreciated assets. This mechanism is fundamental to understanding the true capacity of a company to finance its investments, repay borrowings or pay dividends without undermining its cash position.

The underestimated risk. A director who steers solely on net profit ignores the depreciation component in self-financing capacity. They may underestimate their true repayment capacity to banks or decide to distribute dividends without having assessed the true reinvestment need.

Both types of charges appear in the same block of the profit and loss account, but their nature is fundamentally different.

In practice, confusion arises when reading the French tax return (liasse fiscale). In table 2052 (detailed profit and loss account), charges appear grouped under "Dotations d'exploitation". The detailed breakdowns are in schedules 2055 (fixed assets) and 2056 (depreciation) — see our article Tax return definition for a guided reading of those schedules.

1. Missed asset write-offs#

When an asset is sold, destroyed or scrapped, it must be removed from the balance sheet: gross value credited, accumulated depreciation debited, residual NBV recognised as an exceptional charge. Without this entry, the balance sheet accumulates ghost assets — assets that no longer exist physically but remain on the books. This is one of the most frequently identified gaps in a closing audit.

2. Components not separated#

For buildings, industrial equipment and any complex asset, the component method is compulsory when components have significantly different useful lives. Failing to apply it means depreciating an entire building at 50 years when the roof should be at 20–25 years — overstating the NBV and distorting the balance sheet.

3. Fiscal duration confused with economic duration#

The durations accepted by the administration are practical tolerances, not obligations. If equipment is genuinely worn out in 3 years but depreciated over 5, NBV is overstated. Conversely, if too short a duration is retained, the administration may challenge and claw back excess depreciation.

4. Ancillary costs not included in the base#

It is common for transport, installation or commissioning costs to be expensed directly rather than included in the entry cost of the asset. The depreciable base is then understated and annual charges are calculated on too low an amount.

5. SaaS subscriptions vs acquired software#

In 2026, the line can be blurred. An annual SaaS subscription is not a fixed asset — it is an operating expense. A perpetual software licence is an intangible fixed asset, depreciable over 1–3 years depending on economic life. Confusing the two either inflates fixed assets (if a subscription is wrongly capitalised) or inflates charges (if acquired software is expensed directly).

1. Validate the depreciable base at entry: confirm all ancillary costs are included and residual value correctly estimated.
2. Document the depreciation plan for each asset: duration, method, start date, justification if the duration departs from standard practice.
3. Reconcile schedule 2056 with class 28 accounts at every closing.
4. Process asset disposals in real time: sale, scrapping or destruction must trigger a disposal entry.
5. Identify components for any real estate or complex equipment.
6. Distinguish SaaS subscriptions from acquired software in line with your accounting period and closing policy.
7. Review dérogatoire depreciation: are regulated provisions on the liabilities side consistent with the accelerated depreciation plans in use?
8. Review self-financing capacity: is the depreciation contribution consistent with the level of investment during the period?

Updated 2026-05-26. This article is for information purposes and does not replace personalised advice. For your specific situation, consult a chartered accountant registered with the Ordre des experts-comptables.

This English section is written for international readers who need to apply the French guidance to a real management decision. The key point for depreciation charges (dotation aux amortissements) in French accounts is not to memorise every technical rule, but to connect the rule to documents, deadlines, cash impact and governance. For finance teams closing French statutory accounts and reviewing fiscal deductibility, the right approach is to identify the decision to be made, collect reliable evidence, and only then choose the accounting, tax, payroll or legal treatment.

The practical decision is which method (straight-line, declining, by component), which useful life and which fiscal acceleration apply per asset. That decision should be documented before the year-end close, financing discussion, payroll run, transaction signing or tax filing concerned by the topic. When the matter is material, the file should include who decided, which assumptions were used, and which professional advice was obtained.

Evidence to keep#

• fixed-asset register;
• depreciation policy memo;
• BOFiP useful-life tables;
• year-end disposal log;
• fiscal vs accounting reconciliation;

A depreciation method that fails the BOFiP useful-life test is reintegrated by the tax authority and can trigger interest and penalty surcharges. A clean file also helps the company answer questions from banks, investors, auditors, tax authorities, employees or buyers. It is usually cheaper to prepare that evidence during the process than to reconstruct it after a dispute, audit or urgent financing request.

Management checklist#

Before acting, management should run a short checklist. First, confirm that the entity, period and perimeter are correct. Second, compare the accounting treatment with the tax, payroll or legal consequence. Third, quantify the cash effect, because a technically valid option may still be unsuitable if it creates a short-term liquidity issue. Fourth, make sure the decision can be explained in plain English to a shareholder, lender, employee or buyer who is not familiar with French terminology.

For French subsidiaries of foreign groups, translation is also a control topic. A term that sounds familiar in English may not have the same legal meaning in France. The safer method is to keep the French source wording in the working file, then add a short English management note explaining the decision, the financial effect and the residual risk.

How Hayot Expertise would frame the work#

In a professional review, the starting point is the business objective. Is the company trying to reduce risk, close the accounts, prepare a filing, obtain financing, retain employees, sell a business or improve reporting? Once the objective is clear, the technical analysis becomes more useful because it is attached to a concrete decision. Hayot Expertise would generally separate the work into three layers: compliance, numbers and management judgement.

The compliance layer answers whether a rule applies and which documents are required. The numbers layer measures the effect on profit, tax, payroll, cash, equity, valuation or working capital. The management layer decides whether the option is consistent with the company's strategy and risk appetite. This separation avoids a common mistake: treating a French technical rule as if it were only an administrative formality.

A fuller decision framework#

For a director who does not work daily with French accounting and tax rules, the safest framework is sequential. Start with the legal form and tax regime of the business. Then identify the income stream, expense, asset, employee benefit, transaction or reporting obligation concerned. Then test the accounting treatment, the tax treatment and the cash effect separately. Only after those three views are consistent should the company automate the process in accounting software or payroll.

This matters because French compliance is document-heavy. A bank feed, invoice, contract, payroll notice or tax form may each be correct on its own, while the overall file remains inconsistent. For example, the accounting entry may not match the tax return, the VAT position may not match the invoice wording, or the management report may not match the board minutes. English-speaking directors should therefore ask for a short reconciliation note whenever the amount is significant.

Questions to ask before closing the file#

• What is the exact French rule or accounting principle being applied?
• Which document proves the amount, date, counterparty and business purpose?
• Does the treatment affect VAT, corporate tax, income tax, payroll or social contributions?
• Is the cash impact immediate, deferred or only visible at sale, audit or financing?
• Who inside the company owns the update next year?

Why this improves SEO and real usefulness#

For an English reader, the value of this article is not a literal translation of the French version. It is the bridge between French terminology and management action. The content should help the reader understand what to verify, what to ask the accountant, and where the risk may sit in the financial statements or cash forecast. That is also the reason the English version keeps the French concepts visible while explaining them in operational language.

When to ask for help#

Professional input is useful when the topic changes the tax result, payroll cost, legal position, financing capacity, valuation or shareholder relationship. It is also useful when the company is growing quickly and the same decision will repeat every month. A small error in a one-off file is inconvenient; the same error embedded in a recurring workflow becomes expensive.