Costs, Profit & Reality
Depreciation in a Business Plan: A Simple Guide
A business may buy equipment once, but use it for many years.
If the plan ignores that wear-and-tear, profit looks too clean. If it charges the full equipment cost in one month, profit looks too harsh.
Depreciation is the middle path: spread the cost over the useful life of the asset.
What depreciation means
Depreciation is the systematic spreading of an asset's cost over the period the asset is expected to be useful.
A machine, freezer, oven, counter, chair, vehicle, or computer helps the business for more than one month. So a planning P&L should not treat it like ordinary monthly rent or salary.
Why it matters in a loan plan
A lender reads depreciation as part of the profit story, but also looks beyond it because depreciation is a non-cash charge.
That is why depreciation affects projected profit, while repayment comfort still depends on actual cash available for EMI.
- Profit should reflect asset wear-and-tear.
- Cash flow should still show whether EMI can be paid.
- The balance sheet should not pretend assets stay new forever.
A sample planning table
The image above shows a simple planning view. Land is not depreciated. Leasehold fit-out is usually written down over the lease or a practical planning life. Plant, furniture, office equipment, IT, and software each need a different treatment.
This is an illustrative table, not a promise that every business will use the same life or residual value.
What DshaVault does
DshaVault uses classified project-cost heads so depreciation is not one blind percentage on everything.
Land, deposits, opening inventory, operating cash, and contingency are not treated as depreciating assets. Tangible fixed assets, leasehold improvements, and software are handled differently because they behave differently.
The goal is to make the projection more believable, not to replace a CA's statutory working.
What your CA or auditor may still check
A CA or auditor will usually work from actual invoices, asset class, ownership, put-to-use date, accounting policy, Companies Act or accounting-standard requirements, and income-tax rules.
They may split assets more finely than a planning tool: for example, computers, office equipment, restaurant furniture, vehicles, and leasehold improvements can all have different treatment.
- Whether a cost should be capitalised or expensed
- The date the asset was put to use
- Book depreciation versus tax depreciation
- GST input credit, subsidy, or grant adjustments
- Residual value and useful-life justification where required
Planning depreciation versus tax depreciation
For a business plan, the purpose is clarity: show a reasonable cost for using long-life assets.
For tax filing, the purpose is legal computation: the Income-tax Act and rules may use block-wise written-down value rates, half-year restrictions, and other conditions.
So the clean wording is: DshaVault shows planning depreciation for projections. Your CA finalises book and tax treatment where required.
How to use this as an owner
- Keep invoices and asset details clean from day one.
- Do not mix land, deposits, stock, and machinery into one asset number.
- Tell your CA when each asset was actually ready for use.
- Use planning depreciation to understand profit, but use cash surplus to judge EMI comfort.
Good depreciation does not make a business stronger by itself. It makes the plan more honest about assets, profit, and repayment capacity.