You buy a machine for CHF 10,000 and expect to use it for five years. In the accounts, its entire cost does not necessarily belong in the year of purchase. Depreciation recognises the consumption of its economic value over time.
At a glance
- Depreciation recognises a loss of value caused by use and the passage of time.
- A value adjustment addresses other causes of loss in value; the mechanism is not always the same.
- Straight-line depreciation spreads the depreciable amount over the useful life. Declining-balance depreciation applies a rate to the remaining carrying amount.
- Federal Tax Administration rates should not be confused with a mandatory economic useful life for every asset.
Why depreciate a fixed asset?
A machine, vehicle or computer may be used over several financial years. Its acquisition is recognised as an asset if the recognition conditions are met. Depreciation reduces its carrying amount and is an expense in the income statement.
Article 960a of the Code of Obligations distinguishes losses in value caused by use and time from losses caused by other factors. Significant damage or unexpected obsolescence may therefore require an additional value adjustment.
Depreciation is not a cash reserve. On its own, it does not create the liquidity needed to replace equipment.
Why spread a purchase over several years?
Suppose equipment costing CHF 10,000 is used for five years. If its full cost were charged in year one, that year would look much less profitable, while the next four years would use the asset without bearing the same expense. Depreciation allocates the cost using the chosen method and estimated useful life.
This helps match the asset’s use with the results it supports. It is not, however, an exact measure of its market price at each date. A computer may quickly lose resale value while remaining suitable for the team’s work.
Also distinguish accounting treatment from tax rules. Useful life, obsolescence and residual value inform the former; accepted rates and practices govern the latter. Selecting a percentage from a leaflet does not remove the need to check which asset, calculation base and method it applies to.
Which assets can be depreciated?
Tangible fixed assets include machinery, vehicles, IT equipment, furniture and buildings. Land must be separated from the building: it is generally not depreciated merely because time passes, although a particular loss in value may need to be recognised.
Intangible assets, such as certain software, patents or acquired rights, also require an assessment of useful life. In English, allocation of the cost of an intangible asset is generally called amortisation. For Swiss statutory accounts, the treatment must follow the Code of Obligations; IFRS rules on trademarks or goodwill do not automatically apply.
A patent’s legal protection period may set a possible upper limit, but its economic useful life can be shorter.
Three calculation methods
Straight-line depreciation
Annual charge = (acquisition cost − estimated residual value) / useful life.
A CHF 10,000 machine used for five years with no assumed residual value gives an annual charge of CHF 2,000 for each full year. After two years, its carrying amount is CHF 6,000.
For a CHF 30,000 vehicle over five years on the same assumptions, the charge is CHF 6,000. The date the asset enters service and the policy for part-year depreciation must also be considered.
Declining-balance depreciation
Charge = carrying amount at the start of the period × rate.
A CHF 5,000 computer depreciated at 40% gives a CHF 2,000 charge in year one, then CHF 1,200 in year two on the remaining CHF 3,000. This calculation does not automatically reduce the value to zero: the final treatment must be consistent with the useful life and residual value adopted.
Usage-based depreciation
For some equipment, operating hours or units produced better reflect consumption of the asset. You then need to estimate total expected use and reliably track actual use.
A three-year comparison
Example: a CHF 5,000 computer, full years, with no residual value in the straight-line scenario. The 40% declining-balance and 20% straight-line rates illustrate the different expense profiles. Amounts are in CHF.
| Year | 40% declining-balance charge | Declining-balance net value | 20% straight-line charge | Straight-line net value |
|---|---|---|---|---|
| 1 | 2,000 | 3,000 | 1,000 | 4,000 |
| 2 | 1,200 | 1,800 | 1,000 | 3,000 |
| 3 | 720 | 1,080 | 1,000 | 2,000 |
Depreciation recognises consumption of value; it is not a new annual payment for the computer. The actual choice depends on the accounting and tax circumstances.
Which Swiss tax depreciation rates should you check?
FTA leaflet A/1995 sets normal depreciation rates for commercial businesses. The table below presents selected categories from its French version.
| Category in leaflet A/1995 | Rate on carrying amount | Rate on acquisition cost |
|---|---|---|
| Business furniture and movable workshop or warehouse fittings | 25% | 12.5% |
| Production equipment and machinery | 30% | 15% |
| Motor vehicles of all types | 40% | 20% |
| Machinery mainly used in shifts or under special conditions, such as heavy stoneworking or construction machinery | 40% | 20% |
| Machinery heavily exposed to harmful chemical effects | 40% | 20% |
| Office machines | 40% | 20% |
| Computers, including hardware and software | 40% | 20% |
Footnote 3 requires the rates to be halved when applied to acquisition cost. A normal rate of 30% on the carrying amount therefore corresponds to 15% on acquisition cost. Do not mix these calculation bases.
Precise asset classification matters: ordinary production machinery and machinery mainly used for shift work do not have the same rate in this leaflet. Software falls within the computer category, but a subscription providing access to a service must be distinguished from an asset to be amortised.
These rates concern tax deductibility under the leaflet’s conditions. Commercial accounts and tax returns do not necessarily use the same value. Article 960a paragraph 4 CO notably allows additional depreciation for replacement purposes and to safeguard the company’s long-term prosperity, without making every charge automatically tax-deductible. This list is not exhaustive. In Geneva, Vaud or another canton, also check the applicable practice before adopting immediate or exceptional depreciation. Reconcile the accounting and tax treatment.
How do you record depreciation?
For a CHF 2,000 charge, debit depreciation expense and credit either the asset itself or its contra-asset account. The Code of Obligations prohibits presenting depreciation of that asset as a liability.
The notes to the financial statements provide relevant information on the principles applied and the items concerned. Also retain a fixed asset schedule showing acquisitions, disposals, charges and net carrying amounts. Our article on debits and credits explains the entry logic.
Direct or indirect recording: the same net asset value
Return to the CHF 10,000 machine depreciated by CHF 2,000 a year for two full years.
| Recording method | Amount in the asset account | Separate accumulated depreciation | Net value |
|---|---|---|---|
| Direct depreciation | CHF 6,000 after reducing the account | No separate contra-asset account | CHF 6,000 |
| Indirect depreciation | CHF 10,000 | −CHF 4,000 on the asset side | CHF 6,000 |
In both cases, the total expense over two years is CHF 4,000. Indirect recording makes historical cost and accumulated depreciation easier to see. It does not create a CHF 4,000 debt to anyone. On sale or scrapping, the records must allow the asset and its associated depreciation to be removed.
This distinction concerns how depreciation is recorded. It is independent of whether the calculation is straight-line or declining-balance.
What does depreciation change in your decisions?
Annual depreciation of CHF 2,000 reduces profit by CHF 2,000. The bank balance does not fall again by the same amount: payment occurred when the asset was bought, or follows the financing schedule. This distinction is essential when assessing a business that invests heavily.
Depreciation is not a savings pot either. If you want CHF 12,000 available to replace the machine in five years, include that future payment in your planning. The accounts can recognise an annual expense without the business actually setting money aside.
At each year-end, examine concrete changes: equipment taken out of use, heavier utilisation, damage or an earlier planned replacement. These facts may require revised estimates or carrying amounts. Keep the explanation with the fixed asset schedule.
A fully depreciated asset can still be useful. Before replacing it, compare its reliability, maintenance costs and capacity with the proposed alternative. A zero carrying amount does not answer that economic question.
Distinguish the investment’s depreciation from other deductible business expenses, and include the actual payment date in your cash flow budget.
Mistakes to avoid
Do not confuse carrying amount with a possible selling price. Do not automatically expense every durable item or capitalise every small purchase. Consider materiality and apply a consistent classification policy.
Accounting depreciation reduces taxable profit only to the extent it is accepted for tax purposes. Differences must be addressed in the tax return and explained in the year-end file.
Connect investments with their cost over time
Understanding depreciation helps you read profit without confusing it with payments and prepare for equipment replacement. An up-to-date fixed asset schedule makes both perspectives easier.
Our accounting service can help track your assets and apply treatment consistent with their use and Swiss rules.
Frequently asked questions
Does depreciation involve a payment?
No, not when the charge is recorded. Paying for the asset and recognising its consumption in the accounts are separate events.
Can land be depreciated?
Generally not merely for wear or the passage of time. A specific loss in value must be assessed separately.
Must the same rates be applied every year?
The method must remain consistent. A change in estimates or circumstances may justify a documented adjustment, whose tax consequences must be checked.
Sources and references
Romain Prieur is a Swiss certified public accountant and the founder of Entreprendre.ch. With more than ten years of experience in auditing and supporting businesses in Switzerland, he advises entrepreneurs on company formation, accounting and taxation.
