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Report name: Sample Forecast

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 2017May 2018May 2019
Forecast Net Book Value - Main Pool Assets
Net Book Value Bfwd3,50028,87334,871
Cost30,00015,00020,000
Sold000
Net cost33,50043,87354,871
    
Depreciation Charge4,6279,00211,913
Depreciation Written Back000
Net Depreciation Charged4,6279,00211,913
    
Net Book Value Main Assets CFwd28,87334,87142,958
    
Profit on Sale of Main Pool Assets000
    
Forecast Net Book Value - Company Cars
Net Book Value Bfwd9,00027,75119,210
Cost25,000030,000
Sold006,000
Net cost34,00027,75143,210
    
Depreciation Charge6,2498,5418,816
Depreciation Written Back00438
Net Depreciation Charged6,2498,5418,377
    
Net Book Value Cars CFwd27,75119,21034,832
    
Profit on Sale of Company Cars000

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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