How to Account for Fixed Assets and Depreciation in Hong Kong

Capitalise, don't expense. Items that will serve the business for more than a year and exceed a sensible cost threshold (often set by company policy) are recorded as fixed assets. Day-to-day repairs are expenses.

Depreciation allocates cost across the years the asset is expected to be used. Common methods are straight-line (equal amounts each year) and reducing balance. The accounting standard requires you to choose a life and method that reflect how the asset is used and to review them periodically.

Fixed-asset register. For each asset keep:

• description and serial number;
• purchase date, supplier and cost, with the invoice;
• depreciation method and useful life;
• accumulated depreciation and carrying value;
• disposal date and proceeds, if sold.

Entries

• Purchase: debit fixed assets, credit bank or payable.
• Each period: debit depreciation expense, credit accumulated depreciation.
• Disposal: remove cost and accumulated depreciation, record gain or loss.

Section 373 requires a record of assets, and the IRD expects records of business assets. Depreciation rates should be set by the accounting standard and company policy, not by tax allowance rates, which are a separate matter (see the answer on accounting depreciation versus tax depreciation allowances).