Manufacturing depreciation schedules don't match up with reality
February 07, 2012
In a recent editorial for Aerospace Manufacturing and Design magazine, Scott Walker pointed out the inconsistency between the depreciation
schedule for capital equipment and the actual useful life expectancies of the majority of parts.
The current depreciation schedule
for fixed assets
used in manufacturing is 12 years, although, as Walker notes, "The majority of the part programs in aerospace, automotive, and energy have a five-year life cycle."
In Walker's opinion, the schedule is outdated because it was put in place at a time when products and the technology used to make them did not change as rapidly. Although there is an option to apply accelerated depreciation, companies that take advantage of this must pay a penalty, which contributes to large original equipment manufacturers (OEMs) becoming reticent to make fixed asset
Leasing has emerged as an alternative option, as lease payments are considered an operating expense and allow depreciation to be avoided. However, this too has its downsides, including profit margin reductions.
Companies in manufacturing and other industries can keep track of depreciation schedules
and other fixed asset data by leveraging fixed asset management
software such as offerings from Sage FAS.