ERPNext allows identifying overheads such as Rent, Wages, Electricity, etc. in the “Workstations”. However, I’m wondering what is the best practice for Depreciation of Factory Machinery.
I need the Depreciation of Factory machinery to be part of the product cost (inventory).
What do you think about this practice and how can I implement this in ERPNext?
@thelahera I believe that the best type of depreciation for factory machinery is Units of Production.
What it is
The units of production method is a simple way to depreciate a piece of equipment based on how much work it does. “Unit of production” can refer to either something the equipment creates–like widgets–or to the hours it’s in service.
Who it’s for
Small businesses writing off equipment with a quantifiable, widely accepted output during its lifespan (e.g., based on the manufacturer’s specifications) who want to take more depreciation in years when they use the asset more and less depreciation when they use the asset less. Because this method requires tracking the use of the equipment, it’s generally only used for high-value equipment or machinery.
Formula
(asset cost – salvage value) / units produced in useful life
How it works
Using the formula above, you figure out the dollar value in depreciation for each unit produced. By adding up all the units produced in one year, you get the amount to write off. Once all of the units have been written off, depreciation of the asset is complete–its useful life is technically over, and you can’t write off any more units.
Reference
What is depreciation? And how to calculate it?
Currently I’m working on a plugin to automate fixed assets depreciation