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# How Fixed Asset Net Book Forecasts are Calculated

## Cost less depreciation defines fixed asset net book value. It is a notional value of the asset’s residual working life, not its realisable value for sale.

 forecast for year beginning the 1st. May 2017 May 2018 May 2019 Forecast Net Book Value - Main Pool Assets Net Book Value Bfwd 3,500 28,873 34,871 Cost 30,000 15,000 20,000 Sold 0 0 0 Net cost 33,500 43,873 54,871 Depreciation Charge 4,627 9,002 11,913 Depreciation Written Back 0 0 0 Net Depreciation Charged 4,627 9,002 11,913 Net Book Value Main Assets CFwd 28,873 34,871 42,958 Profit on Sale of Main Pool Assets 0 0 0 Forecast Net Book Value - Company Cars Net Book Value Bfwd 9,000 27,751 19,210 Cost 25,000 0 30,000 Sold 0 0 6,000 Net cost 34,000 27,751 43,210 Depreciation Charge 6,249 8,541 8,816 Depreciation Written Back 0 0 438 Net Depreciation Charged 6,249 8,541 8,377 Net Book Value Cars CFwd 27,751 19,210 34,832 Profit on Sale of Company Cars 0 0 0

### The Role of Depreciation

Fixed assets with a perceived life of ten years will be depreciated at 10% and with a perceived life of twenty years at 5%.

Figurewizard automatically claculates and applies depreciation to your forecasts. It budgets these. For example the value you enter for new fixed assets is "budgeted" by applying it as 1/12th per month, with depreciation (and asset finanincing) budgeted in the same way.

Net book value only returns the net residual working life value of a fixed asset in a going concern. The distinction between that and its sale value (AKA fair value) is very important, especially when it comes assessing how strong a balance sheet really is.

With few if any exceptions, revenue arising from the disposal of fixed assets is likely to be significantly lower than its depreciated net book value. If it's a forced sale that value will be lower still. This is why fixed assets should always be heavily discounted when assessing a the true net value of net assets / equity.

Working capital arising from net current assets, not net assets / equity is much more representative of a company's financial health and its ability to meet its financial liabiities on time.

### Depreciation and Capital Allowances

As depreciation is a non-cash provision, it is not tax deductible; it is substituted for by capital allowances.

Each year new main pool assets; for example, machinery, fixtures, furniture, equipment and commercial vehicles attract capital allowances of 100% up to the limit for (AIA) annual investment allowance up to a limit of £1,000,000 (2018 / 2019).

If more than £200,000 is spent on main pool assets in any year the allowance on the balance falls to 18%.

Capital allowances are calculated on their reducing balance, not their original cost excluding VAT. If, in the unlikely event an SME has a written down tax balance of main pool assets an allowance of 18% will also be applicable in subsequent years.

### Capital Allowances for Company Cars

AIA limit is currently (2017 / 2018) set at £200,000. Annual investment allowances do not apply to company cars unless their emissions are at or below 110gm/Km of CO2.

Company cars with higher emissions will only attract an 8% AIA  and 8% again on the reducing balance in subsequent years.

Figurewizard forecasts always assumes the worst and so categorises the values of company cars you enter as subject to the 8% rate for the purpose of the forecasts.

### Budgeting of Fixed Assets

Figurewizard budgets the acquisition and disposal of fixed assets over a twelve-month period. For example, if you enter a year's purchases of new fixed assets at £1,200, they will be assumed to have been purchased at the rate of £100 a month.

Depreciation, charged or written back if some fixed assets are sold are all calculated and applied to the forecasts in line with that as are asset financing loans, their repayments and interest.

### How Figurewizard Calculates Depreciation

Figurewizard uses the straight line method when calculating depreciation. For example, if depreciation is set at 20%, fixed assets will be depreciated to zero over five years.

Depreciation written back on the value of sales is similarly calculated. In addition, our system always assigns the sale of fixed assets on a first in first out basis. For the purpose of forecasting and budgeting straight line depreciation is the most prudent approach.

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