Presentation to understand how depreciation works in XERO accounting software. Understanding how to run and roll back Depreciation. Adding fixed assets in XERO. New simplified depreciation guidelines issued by Australian Tax Office.

1. DEPRECIATION IN XERO

2. AGENDA
Introduction to
Depreciation
Simplified
Depreciation Rules
Instant Asset Write-
Off and Thresholds
Small Business Pool
Depreciation in
XERO
Ways to Add a
Fixed Asset
Run or Roll Back
Depreciation Pool Depreciation
Checklist before
Running
Depreciation

3. INTRODUCTION TO DEPRECIATION
As a rule, the cost of capital assets can’t be claimed immediately.
Instead the cost needs to be claimed over the time (effective life)
reflecting asset’s decline in value.
A depreciating asset is one that has a limited effective life and can
reasonably be expected to decline in value over the time it's used. The
cost of an asset for depreciation purposes includes the amount paid
for it as well as any additional costs incurred in transporting, installing
and repairing the asset immediately after being acquired.
Small businesses can choose to use the simplified depreciation rules –
which include the instant asset write-off.

4. SIMPLIFIED
DEPRECIATION
RULES
 An instant asset write-off for assets that cost less than the relevant threshold
 A general small business pool for assets that cost the same or more than the
relevant threshold, which has simplified calculations to work out the depreciation
deduction.
 Recent changes from 12 March 2020 until 31 December 2020:
- threshold amount for each asset is $150,000
- Can claim 57.5% of the cost of the asset in the first year added to the small business
pool and then 30% as per general business pool rules.
- Eligible businesses are ones with an aggregated turnover of less than $500 million.
- Eligible assets are new assets i.e. assets must be first held, and first used or first
installed ready for use for a taxable purpose on or after 12 March 2020 until 30 June
2021.
 From 1 January 2021 the instant asset write-off will only be available for small
businesses with an aggregated turnover of less than $10 million and the threshold
will be $1,000.
 For more info: https://www.ato.gov.au/business/depreciation-and-capital-expenses-
and-allowances/in-detail/depreciating-assets/simplified-depreciation---rules-and-
calculations/

5. INSTANT ASSET
WRITE-OFF FOR
ELIGIBLE
BUSINESSES
Eligible businesses can claim an
immediate deduction for the business
portion of the cost of an asset in the
year the asset is first used or installed
ready for use. Instant asset write-off
can be used for multiple assets if the
cost of each asset is less than the
relevant threshold and for new and
second-hand assets.
If using the simplified depreciation
rules, and the cost of the asset is the
same or more than the relevant instant
asset write-off threshold, the asset
must be placed into the small business
pool.
If not using the simplified depreciation
rules, and the cost of the asset is the
same or more than the relevant instant
asset write-off threshold, use the
general depreciation rules or use the
backing business investment –
accelerated depreciation for certain
eligible assets.
A car limit applies to the cost of
passenger vehicles. The instant asset
write-off is limited to the business
portion of the car limit for the relevant
income tax year. You cannot claim the
excess cost over the car limit under any
other depreciation rules. If your vehicle
is not considered a passenger vehicle,
the car limit does not apply.

6. INSTANT ASSET WRITE-OFF THRESHOLDS
Eligible businesses
Date range for when asset first used or
installed ready for use
Threshold
Less than $500 million aggregated
turnover
12 March 2020 to 31 December 2020 $150,000
Less than $50 million aggregated turnover 7.30pm (AEDT) on 2 April 2019 to 11 March 2020 $30,000
Less than $10 million aggregated turnover 29 January 2019 to 7.30pm (AEDT) on 2 April 2019 $25,000
Less than $10 million aggregated turnover 1 July 2016 to 28 January 2019 $20,000
Less than $2 million aggregated turnover 7.30pm (AEST) on 12 May 2015 to 30 June 2016 $20,000
Less than $2 million aggregated turnover 1 January 2014 to prior to 7.30pm (AEST) 12 May 2015 $1,000
Less than $2 million aggregated turnover 1 July 2012 to 31 December 2013 $6,500
Less than $2 million aggregated turnover 1 July 2011 to 30 June 2012 $1,000
https://www.ato.gov.au/Business/Depreciation-and-capital-expenses-and-allowances/Simpler-depreciation-for-small-business/Instant-asset-write-
off/#Thresholds

7. SMALL BUSINESS POOL
 Small businesses can pool the business portion of most higher cost
assets (those with a cost equal to or more than the relevant instant
asset write-off threshold) and claim:
- a 15% deduction in the year they use them or have them installed
ready for use (this percentage may increase to 57.5% for those
assets eligible for the backing business incentive – accelerated
depreciation)
- a 30% deduction each year after the first year
 Small businesses can deduct the balance of the small business pool
at the end of the income year if the balance at that time (before
applying the depreciation deductions) is less than the instant asset
write-off threshold.

8. DEPRECIATION IN XERO
Record depreciation on your assets in Xero, in line
with ATO requirements for small businesses and
other business entities.
A business can depreciate assets either at No
Depreciation (Excluded Assets) or Full depreciation
at Purchase (Instant write-off) or Straight Line
(Same rate) or Diminishing Value depending upon
ATO guidelines.
A business can use accelerated depreciation by
either adding asset to the small business pool or
using general depreciation rules.
XERO allows user to Run depreciation and Rollback
Depreciation.

9. WAYS TO ADD A FIXED ASSET IN XERO
Adding a bill or using Spend Money
transaction to record payment for
purchase of the fixed asset. This creates a
Draft in Accounting -> Advanced -> Fixed
asset which then needs to be registered.
1
Creating a Spend Money transaction when
the payment shows up on bank statement
through bank reconciliation. This creates a
Draft in Accounting -> Advanced -> Fixed
asset which then needs to be registered.
2
Creating a new asset in Accounting ->
Advanced -> Fixed asset and then
registering the asset directly.
3

10. CHECKLIST BEFORE RUNNING DEPRECIATION
Reconcile all Bank and Credit card Statements for the end of last month.Reconcile
Review that all the bills and Accounts Payable have been receipted in XERO.Review
Confirm there are no Draft Assets.Confirm
Register all Fixed Assets.Register
Run DepreciationRun

11. RUN AND ROLLBACK
DEPRECIATION IN XERO
 An adviser role is needed to run or rollback depreciation.
Depreciation can only be run or rolled back up to one
financial year at a time.
 Run depreciation to reduce the book value of fixed assets
and calculate tax and pool depreciation. Depreciation is only
run-on registered assets. Can be run monthly, quarterly or
annually. The earliest date depreciation can run from, or roll
back to, is the Fixed Asset Start Date. Need to do a manual
journal for any earlier depreciation.
 Roll back depreciation on registered assets you've
previously depreciated in Xero. This helps if the business has
found any assets that were purchased and not recorded on
XERO.

12. POOL DEPRECIATION IN XERO
 To Create a new pool, Go to Accounting -> Advanced -> Fixed Assets. Select Pools tab and click New Pool.
Select the Pool type as either Small Business pool or Low Value pool or Custom Pool. If it is an existing pool,
then enter the Pool’s opening balance and hit Save. The depreciation rate is predetermined for small business
and low value pools as per ATO’s guidelines.
 Pool depreciation is calculated in the last month of each financial year.
 XERO calculates depreciation on all assets in the pool using the diminishing value method, as if they were a
single asset. It continues to calculate pool depreciation until the pool balance is zero. To write-off the pool
balance a manual adjustment needs to be made.
 If business qualifies as a small entity, create a custom pool and add the eligible asset to it. The assets can be
depreciated at 57.5 % in the first year, and in later years, at 30 % as per the general small business pool rules.