Using the Producer Price Index for Revaluation of Basic Assets

The accrual of depreciation of non-current assets is currently quite a demand topic for various forums, with economists, financiers, and enterprise managers participating. The interest of many professionals in this discussion is logically explained by the innovative tendencies of re-equipment of production capacities and the awareness of the shareholders of the organizations of the need for the use of advanced equipment, meaning the period of not only its material wear and tear, but the speed of moral annihilation. This discussion reveals new ties of depreciation policy, not only with the technical re-equipment of production lines, but also with such aspects of the modern economy as pricing mechanisms, financial and investment techniques, taxation and other important aspects of economic activity of enterprises.

Creation of an effective mechanism for the renewal of production equipment is not feasible if the growth in the producer price index of the relevant equipment is not taken into account. The increase in the price of production equipment is due to several reasons, including the constantly falling processes of cheapening the national currency, and the increase in equipment cost, not related to inflation, caused by the increase in its consumer qualities, longevity and the transition to a new generation of technologies. This circumstance, obviously, is an obstacle to the turnover of means of production, since the price of new equipment is greater than the amount of depreciation accrued for the useful life of the fixed asset subject to write-off. Timely renewal of fixed assets of the organization can be realized in various ways.

The most common is the attraction of financial flows from outside, in the form of loans, investments, issue of shares. However, this way does not completely solve the problem of replenishing financial resources, but, rather, allows to solve this task in the future, when it will be time to fulfill obligations to creditors or investors. It is also useful to remember the reason that led to the appeal to external monetary sources - the producer price index. In the mentioned conditions, the practice of attracting loans or investments necessary for the periodic renewal of the fixed asset fleet may become chronic and adversely affect the efficiency of the organization's vital activity.

In these conditions, it is advisable for enterprises to pay attention to the investment component of the sales revenue, which forms the accrual of depreciation. In particular, the fact that the growth in the amount of accruals can significantly reduce the need to attract third-party funds in the renovation of production equipment. The accrued amount of depreciation goes to the accounts of the enterprise as part of the price for the products sold. Price jumps can adversely affect the volume of sales of goods, so this way assumes a forecast for the possibility of selling products. The legal basis for the implementation of this measure is the "Methodological Guidelines for Accounting for Fixed Assets", which are an Appendix to Order No. 91n of the Ministry of Finance of the Russian Federation of 13. 10. 2003 (Methodological Guidelines). For example, paragraph 41 of the document defines the revaluation of fixed assets as a way of reconciling their market and accounting value.

Revaluation of fixed assets allows you to reconcile with the reality and accrual of depreciation. The effectiveness of revaluation is largely determined by the validity of the initial characteristics of fixed assets. Part of the information - the cost when commissioning, accrual of depreciation - are contained in the accounting records. However, the current (replacement) cost can only be obtained by an expert method. The expert evaluation often faces difficulties due to a number of circumstances - the high cost of these services and the shortage of professional appraisers specializing in this type of property. On the other hand, at present it is not difficult to find statistical reports containing fluctuations in the prices of equipment manufacturers. This information allows you to independently calculate the producer price index and create on its basis the methodology for carrying out the examination, the use of which is quite available to the specialists of the interested organization.

The methodology of development may be the principle of analogy. The producer price index enables us to calculate the actual value of the initial value of the object being revalued. At the same time, the objectivity of the revaluation can be significantly facilitated by the receipt from open sources of the values of indices offered by industry expert centers. Further, the amount of depreciation that would have been accrued for the period that has elapsed since the commissioning of the revalued equipment can be determined based on the new value of the market value of the object. It is important that all the mentioned calculations remain constant - the period of operation that was established at the commissioning of equipment, and the method of depreciation charges provided for in the accounting policy of the enterprise for fixed assets of this group. Obviously, the initial value, brought to market value and the corresponding amount of depreciation, make it possible to determine the estimation of the market value of production equipment.