Depreciating network equipment by usage or by time
When a provider should depreciate generators, splicers and network gear by usage rather than time, and how a usage-based charge is posted by journal.
By Achekam · · 5 min read · For Telecoms businesses in South Africa, Nigeria, Kenya
Two backup generators were bought on the same day for two tower sites. One sits at a site with steady grid power and runs for its weekly test. The other sits where outages are routine and runs for long stretches most days. After a year, the second machine is far closer to its overhaul, yet straight-line depreciation charges exactly the same amount for both.
That gap between how equipment is used and how it is written off is common in telecoms. Generators, fusion splicers, test sets and the vehicles that carry installers all wear out with work, not with the calendar. This article sets out when a usage-based method makes more sense, the trap of confusing useful life with physical life, and how to record a usage-based charge in Achekam, whose fixed-asset register runs time-based methods only.
Three ways to spread an asset's cost
Investopedia defines depreciation as an accounting method that allocates the cost of a tangible asset over its useful life, to reflect its declining value through use and obsolescence. How that cost is spread depends on the method, and Investopedia's guide to depreciation compares the common ones side by side:
- Straight line, which Investopedia calls the simplest and most common, spreads the depreciable cost evenly across the asset's life. Every month carries the same charge.
- Double-declining balance doubles the straight-line rate and applies it to the balance that remains, so the charge is heavy early and lighter later.
- Units of production bases depreciation on usage rather than time, dividing the depreciable amount by the output the asset is expected to deliver over its life. Each month's charge then follows the work actually done.
The first two are time-based: they assume the asset is consumed by the passing of months. The third assumes it is consumed by work.
When usage tells the truer story
Usage-based depreciation earns its extra effort when three things are true. The asset's wear clearly follows a measurable activity. That activity varies a lot from month to month or from asset to asset. And you can read the measure reliably.
In a provider's business, good candidates include:
- Generators at tower and data-room sites, measured in run-hours from the hour meter.
- Fusion splicers, many of which log a count of splices or arc discharges.
- Installation vehicles, measured in kilometres from the odometer or the tracking system.
- Drilling or trenching equipment hired out to build crews, measured in hours on the machine's own meter.
Poor candidates are assets whose value drains with time whatever you do: routers and switches that a newer standard will replace, software licences, and office equipment. Straight line or a reducing balance suits them better.
Working it through in words
Suppose a generator's cost, less what you expect to recover when you sell it, is spread over the run-hours the manufacturer's service schedule suggests before a full rebuild. Dividing the first by the second gives a rate per run-hour. Each month, someone reads the hour meter, subtracts last month's reading, and multiplies the hours run by that rate. A quiet month at a stable site produces a small charge; a month of load-shedding produces a large one. The ledger then shows the generator being used up at the pace it is actually being used.
Useful life is not physical life
Investopedia makes a point that matters for every method: an asset's useful life is the period the business expects to use it productively, not necessarily how long the equipment will physically last. A microwave radio may still power on after a decade, but if your network will have moved to fibre long before then, its useful life to you is shorter.
The same applies to usage. Expected lifetime output should be what you expect to get from the asset before you replace it, not the most a perfect machine could ever deliver. A splicer you plan to replace with a newer model after a few years of heavy use should be depreciated over the splices it will do for you, not the splices its maker says it can survive.
What Achekam's register runs automatically
Achekam's fixed-asset register lets a business add assets at cost, depreciate them monthly by straight line or reducing balance with a journal each month, and dispose of them with the profit or loss on disposal posted. Two limits are worth knowing: tax wear-and-tear allowances are not worked out (that remains a separate calculation for your tax return), and the register is not part of the Business Essentials plan.
For most of a provider's assets, those two methods are all you need. Usage-based depreciation is not one of the register's methods, so for the few assets you depreciate by usage, the monthly charge is a journal you prepare yourself.
Recording a usage-based charge by journal
A business can post manual journals in Achekam. An unbalanced journal, or one dated in a closed month, is refused, and a posted journal is corrected only by a reversal, which keeps the history of every charge visible. A workable routine looks like this:
- Keep the asset's cost and accumulated depreciation in their own accounts, agreed with your accountant, so a usage-based asset is not mixed into the register's automatic charges.
- Record the meter reading at each month end, with a photo of the meter or the tracking report, and keep it with the month's journal.
- Post the journal: debit depreciation expense, credit accumulated depreciation, for hours or kilometres used multiplied by the rate. Put the readings in the narration.
- Review the rate once a year. If the asset is working harder or less than expected, adjust the remaining rate going forward rather than reworking past months.
- Check the result in the management accounts, where the income statement for the period sits beside the period before, so a sudden jump in depreciation can be traced to a month of heavy running.
Agree the method with your accountant before year end, because the financial statements must describe it. For how the same choice plays out in another industry, see choosing a depreciation method for clinic equipment, and for equipment you lend to subscribers, routers: fixed assets or stock?.
Choosing, in one sentence
If you can read a meter that tracks how the asset wears, and that wear swings from month to month, depreciate by usage and post the journal; otherwise, let the register's straight-line or reducing-balance run do the work.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
