Depreciation<\/strong> is not just a figure on your financial statements \u2014 it\u2019s a safety valve that ensures your company\u2019s sustainability and asset protection. Ignoring depreciation or spending its amount as profit can expose your business to serious financial risks in the future.<\/p>\n \ud83d\udd17 As always, before we begin, we\u2019d like to remind you that for professional feasibility study services<\/strong>, corporate governance<\/strong>, ISO certification preparation<\/strong>, and free preliminary consultation<\/em>, you can reach out through:<\/p>\n Depreciation<\/strong> is the systematic allocation of the cost of a fixed asset (like a car, machine, or furniture) over its useful life \u2014 the period during which the asset provides economic benefits to the business.<\/p>\n For example, if you purchase equipment worth SAR 100,000 that lasts 5 years, you should deduct SAR 20,000 from your profits each year. This approach reflects the true asset value and ensures you can replace it once it\u2019s worn out.<\/p>\n According to IAS 16<\/a> under the International Financial Reporting Standards (IFRS), every company must:<\/p>\n This ensures consistency, transparency, and compliance with international accounting standards.<\/p>\n The useful life \u2014 and therefore the depreciation<\/strong> period \u2014 varies depending on the asset type:<\/p>\n You should set these estimates based on your actual operating conditions rather than random market averages.<\/p>\n Under IFRS, there are three main methods to calculate depreciation<\/strong>:<\/p>\n The chosen method should reflect how the asset\u2019s economic benefits are consumed over time.<\/p>\n Properly recording depreciation<\/strong> has a major impact on your company\u2019s financial health. It affects:<\/p>\n Many small businesses record depreciation<\/strong> in their books but spend the amount as part of their profits. After a few years, they face:<\/p>\n Let\u2019s say a company buys a machine for SAR 600,000 with a useful life of 6 years and a residual value of SAR 60,000.<\/p>\n Annual Depreciation<\/strong> = (600,000 \u2212 60,000) \u00f7 6 = SAR 90,000<\/strong> per year.<\/p>\n This amount should be deducted from profits and saved as a reserve for purchasing a new machine after six years.<\/p>\n Applying depreciation<\/strong> correctly isn\u2019t just an accounting requirement \u2014 it\u2019s a vital financial safeguard. It ensures fair reporting, supports sustainable growth, and prepares your company for future investments. Always review your depreciation estimates annually and stay compliant with IFRS standards for optimal financial performance.<\/p>\n For more insights about the importance of feasibility studies<\/a> or to request professional financial consulting, visit Strategy Mission<\/a> or contact Eng. Mohammed Agha<\/a> directly.<\/p>\n","protected":false},"excerpt":{"rendered":"\n
What Is Depreciation?<\/h2>\n
Depreciation and IFRS Standards<\/h2>\n
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Useful Life of Fixed Assets<\/h2>\n
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Methods of Calculating Depreciation<\/h2>\n
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Why Depreciation Is Important<\/h2>\n
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The Risk of Ignoring Depreciation<\/h2>\n
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Practical Example<\/h2>\n
Conclusion: Depreciation Protects Your Business Sustainability<\/h3>\n