Depreciation and fixed assets, explained without the jargon
Buy a laptop and it's not all an expense today — you spread its cost over the years you'll use it. That's depreciation. Here's what counts as a fixed asset, why you depreciate it, and why it matters for your profit and your tax.
Buy a AED 60 stapler and it's an expense. Buy a AED 60,000 machine and it isn't — at least not all at once. The difference is fixed assets and depreciation, and understanding it keeps your profit honest.
Expense now, or asset over time?
An expense is consumed in the moment: rent, subscriptions, supplies. A fixed asset is something you'll use for years — equipment, vehicles, furniture, computers. You don't burn its whole cost in the month you buy it; you record it on the balance sheet and recognise the cost gradually.
Depreciation: spreading the cost fairly
Depreciation is that spreading. A AED 12,000 laptop expected to last three years might carry roughly AED 4,000 of cost each year, rather than one big AED 12,000 hit. Why bother? Because expensing it all at once would make the purchase month look catastrophic and every later month look artificially rosy. Depreciation matches the cost to the periods that actually get the benefit — which is both truer and the basis your Corporate Tax calculation relies on.
Keep the asset register clean
The practical job is simply keeping a list of what you own, what it cost, and how much has depreciated. Software handles the arithmetic; you just make sure the purchase is recorded as an asset, not lost in general expenses.
General information on fixed-asset accounting, not accounting or tax advice. For depreciation methods and rates specific to your business, consult a licensed accountant.
Frequently asked questions
What's the difference between an expense and a fixed asset?
An expense is consumed now — this month's rent, software subscription, or coffee. A fixed asset is something you'll use for years — a laptop, vehicle, or machine. You record the asset on your balance sheet and spread (depreciate) its cost across its useful life, rather than expensing it all in one month.
Why not just expense everything when I buy it?
Because it would distort your profit. A month you bought a AED 20,000 machine would look like a huge loss, and every month after would look artificially profitable. Depreciation matches the cost to the periods that actually benefit from the asset — a truer picture, and the basis your tax uses.