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The impact of depreciation policy on financial performance and investment opportunities of the industrial enterprise

Vol. 25, Iss. 1, JANUARY 2019

Article PDF Version

Received: 18 September 2018

Received in revised form: 2 October 2018

Accepted: 16 October 2018

Available online: 29 January 2019

Subject Heading: INVESTING

JEL Classification: E22, G31

Pages: 144–158

https://doi.org/10.24891/fc.25.1.144

Subject The paper discusses the issues of depreciation policy as an important component of financial strategy of the industrial enterprise. Depreciation policy affects the enterprise's investment opportunities and net return volume.
Objectives The paper aims to identify key aspects in creation of a depreciation policy capable to provide a timely financing of reproduction processes.
Methods The paper uses the methods of comparative analysis, systematization, and the general scientific methods based on logical reasoning.
Results The paper distinguishes the main differences between depreciation rules in accounting and taxation and factors of depreciation policy. It classifies fixed assets depending on changes in their production potential at different stages of the life cycle. The paper also compares straight-line and non-linear methods of depreciation charging, considering the existing tax benefits and the reasons why companies ignore them.
Conclusions Depreciation policy is a tool for managing financial performance. It allows to adjust the amount of equity available for investment in fixed assets in certain periods of time. The choice of economically feasible depreciation methods affects the course of reproduction processes and development of industrial companies.

Keywords: fixed assets, depreciation policy, moral depreciation, investment, investment tax deduction

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