This paper proposes a concept of the depreciation policy of the business enterprise. Different aspects of the content and presentation of the depreciation policy as a part of enterprise's accounting policy have been discussed. The choice of depreciation policy is shown, discussed as a management decision, both in terms of its preparation and its implementation in the enterprise. 

The importance of the research topic stems from the fact that in the course of its ordinary activities an enterprise uses assets of different type and value over a long, significant period of time. Under the applicable accounting legislation they are distinguished into fixed /non-current/ and short-term /current/ assets. Fixed assets transfer their value to the enterprise's expenditure through depreciation charges. From an accounting point of view, depreciation is recognised as an expense and as an adjustment to the carrying amount of the asset over the period of its use [1]. The reported and recognised amount for depreciation directly affects the calculation of the cost of enterprise's products and services, and hence their effect on the reported financial result for the reporting period - profit or loss.

All of the above imposes the need for appropriate definition of depreciable assets, their classification and reporting, and hence for their correct representation in the financial statements of the enterprise, and in particular in the balance sheet and income statement. Based on the requirement that "the financial statements must give a true and fair view of the financial position of the enterprise", in order to satisfy the information needs of external users, such as shareholders /business partners/, lenders, suppliers, customers, employees, government agencies, etc., the responsibility for the true and fair presentation of the information in the financial statements lies with the management.

Historically, depreciation as a term is known since 14-15 century. In 1588 it is present the British researcher D. Mellisa's work. Depreciation as a category is recognised systematically and scientifically substantiated in the mid-19th century in England.

The increased interest in depreciation reinforces the development of capitalism in the industrialised countries, particularly in joint stock companies. On one hand this is due to investors' interest for expected dividends in the distribution of profits of the company, and on the other - by the intent to mitigate such costs. It could be claimed that depreciation becomes a "complex intellectual choice" in the search of a balance of interests. Such a decision itself could certainly be seen as a management decision.

Initially, the point of charging depreciation is limited to accounting for impairment of depreciable assets, or rather depreciation is limited to monitoring the physical changes occurring in the assets in the course of their use.

In addition, asset obsolescence due to scientific and technical progress requires the reporting for depreciation.

A new concept for the depreciation category is formed based on the dynamic theory of O. Shmalenbach. It is not associated with the impairment of assets but with the allocation of costs to different periods over which the asset is used in the operation of the enterprise.

According to the static theory depreciation reflects the loss of value to an asset because of physical wear-and-tear and obsolescence. The dynamical theory creates a new concept of "value loss".

In our view, to a great extent physical wear-and-tear and obsolescence occur simultaneously, though under the influence of various factors. In this sense, wear is a process which, at a particular time, results in an asset not corresponding to the requirements of modern technology and other factors. Therefore, from an accounting point of view, wear is a physical process. A process which results in depreciable assets losing some of their useful value, some of their operational qualities, which might later be used as intended in an enterprise. Depreciation is an economic process associated with the loss of value [2].

Depreciation should be seen not as physical wear-and-tear, decrease in the market price of a particular depreciable asset over the life of its practical use, but as a diminution in its carrying amount over the same time period. Depreciation is not a single act. Rather, charging deprecation enables the gradual transfer of depreciable value of a particular depreciable asset or a group of assets to the composition of expenditure of the enterprise for the period. Based on the foregoing, we believe that depreciation can be defined as the process of allocating the depreciable amount of an individual asset, rather than an assessment of the same, as long as there is no payment. In practice, depreciation is a process of reducing the depreciable amount of the asset by its gradual inclusion in the cost /expenses/ over the period for its intended use. 

The depreciation policy in a business enterprise is a part of its overall management policy. A specific description of the depreciation policy of an enterprise is given as a constituent element of its approved accounting policy. Pursuant to the requirements of AS 4 Depreciation accounting, every enterprise should prepare its own depreciation policy in accordance with the standard. The required information which must be included in the depreciation policy of the enterprise is:

• the approach adopted for classification of assets as fixed /non-current/ tangible and intangible and as depreciable and non-depreciable;
• the approach adopted for determining the residual value of depreciable assets;
• the method adopted for depreciation of groups of similar depreciable assets;
• other information at the discretion of the

In preparing the depreciation policy of the enterprise, it is a management decision what approach for determining the depreciable and residual value shall be adopted, and to what extent this approach shall be associated with the tax framework, i.e. the Corporate Income Tax Act. The enterprise, while meeting the requirements for uniform valuation policy in respect of depreciation of assets, shall choose between the possible methods of depreciation for each depreciable asset or group of similar assets. All these rules, bases and valuation techniques are within the scope of the management decisions, taking into account the overall development policy of the enterprise. The management team of the entity may consider all recommended and alternative valuation approaches, compare, analyse and report on the effect of the application of different methods and make an informed decision about the ongoing depreciation policy. It should not be regarded in itself, but rather it should be closely associated with the implemented valuation, fiscal, innovation, investment and other policies within the enterprise.

In our view, the depreciation policy is a system of principles, rules, bases, norms and concepts preconceived by the management, on the basis of which it identifies, develops and implements the methods of depreciation for an individual or a group of similar depreciable assets so as to receive economic benefits from their use. It is developed in accordance with the applicable accounting legislation and the requirements of continuity and transience. In all cases, the depreciation policy of the enterprise is a subject to pre-defined objectives. Pursuant to the requirements of AS 4 Depreciation accounting, every enterprise should prepare its own depreciation policy, which is part of its overall management policy.

The choice of one or another depreciation policy, or respectively of these or other principles, rules, regulations and bases for incorporating the relevant part of the cost of depreciable assets in the cost of another asset, is essential to the enterprise. The loss in value of a depreciable asset through depreciation over its useful life is recognised as an expense and, other things equal, increases the loss, respectively reduces profits. Moreover, the amount of depreciation charged as an expense will be equal to the amount the depreciable base of the asset is reduced by. In this sense, it is worth noting that the maximum value that a depreciable asset may lose /carry to the composition of expenditure/ is limited precisely by its depreciation base [3].

In general, the asset's depreciable value corresponds to its historical cost, i.e. its original price /acquisition cost/, unless if at the time of acquisition or commissioning, the enterprise has not decided that at the end of the period of its practical use, the asset will have a residual value, 5 percent higher that its original value. Provided that the estimated residual value cannot be faithfully and reliably determined or is an amount deemed not essential to the enterprise, the depreciable amount is equal to its original value. Thus defined, the depreciable amount is also the basis for allocation over the useful life of the asset, respectively its gradual transfer to expenditure. The enterprise's objective is to be able to recover the acquisition cost at the end of the practical use of a depreciable asset or a group of assets.

Pursuant to the requirements of AS 4 Depreciation accounting, every enterprise should prepare its own depreciation policy, which is a part of its overall accounting and management policy.

In our opinion, accounting policy is the written evidence of e pre-defined, consistent with the applicable legislation and the company policy, set of rules, conventions, bases and procedures used by the enterprise in order to organise and keep its accounting records and the conceptual basis for the preparation and presentation of accounting information in the financial statements of the enterprise, which give a true, fair and objective view of the property and the financial position of the enterprise, of its equity, income and expenses, financial results and cash flows for the reporting period. In summary, it is the starting point for the organisation and the practice of accounting in the enterprise - current and periodic. As a rule, the enterprise's management is responsible for ensuring that an accounting policy is prepared before the beginning of the reporting period. Referring in particular to the depreciation policy, it could be seen as a set of rules, abases and methodologies, which the enterprise has adopted to apply to depreciable assets in accordance with the statutory requirements and the nature of its business. Should we have to present in details our understanding of depreciation policy, we would point out the following features:

• The depreciation policy contains criteria for recognition of an asset as depreciable, and it can also state the assets for which, under the applicable accountancy legislation, no depreciation is charged. This includes the assets that are explicitly stated in p. 1 of AS 4 Depreciation accounting as not
• The depreciation policy must be prepared in compliance with the legal requirements and the nature of the 
• If the selected methods and depreciation rates do not comply with the statutory provisions of the Corporate Income Tax Act, the enterprise prepares a separate accounting and separate tax depreciation schedule for depreciable assets;
• In preparing the financial statements the enterprise must choose one of two approaches, namely: to prepare its tax return after converting its financial statements, or to prepare separate financial and tax
• The depreciation policy could be prepared for each depreciable asset or groups of similar assets, proceeding from the general requirement for same valuation policy, including depreciation
• When preparing the depreciation policy, the entity should comply with the National financial reporting standards for small and medium-sized enterprises, and the provisions of the International accounting standards,
• Depreciation schedules should be drawn up for individual assets or for their identifiable components within the meaning of applicable standards. We refer to Standards 16 and 38 for reporting of tangible and intangible fixed assets, respectively, which provide for the treatment of identifiable components of tangible and intangible fixed assets as separate assets. On this basis, separate depreciation schedules for identifiable assets could be drawn
• The entity must adopt such methods of depreciation in its depreciation policy as permitted by law. In general the methods are considered linear and non-linear. The specific methods are described in the applicable accounting
• The depreciation policy of the enterprise cannot be regarded on its own without the other components of the established accounting policy. In this regard, the Chart of accounts of the business enterprise is directly relevant and is prepared in compliance with accounting for the different types of depreciable assets and the extent of analiticality of its accounts. Another component of the accounting policy is the Document flow plan of the enterprise, which must specify the primary and secondary accounting documents and records used in accounting for depreciable assets. The Inventory taking plan of the enterprise is also directly relevant to the depreciation policy in terms of the legal requirement for reporting of the inventory of assets at the end of each reporting period. The depreciation policy is inextricably linked to the valuation of assets, including depreciable assets, therefore depreciation and valuation policy are unconditionally related as
• Depreciation is charged on a monthly basis, which requires a depreciation schedule to be drawn up for the entire period of the asset's economic
• If a change in some of the parameters of depreciable assets is needed, it must be properly determined whether this is considered a change in accounting policy of the entity or a change in estimates. In the event that the entity decides to change the depreciation method of certain assets, such as from linear to non-linear, this is considered a change in the adopted depreciation, respectively, accounting policy. However, if the entity decides to change the economic life of an asset from 3 years to 5 years, for example, holding on to the same depreciation method, it is considered a change in estimate.
• The preparation of asset depreciation schedules requires proper setting of time limits within which depreciation is to be charged, i. start and end time.
• Using one of the elements of the accounting policy - the rules for valuation of reporting items according to their acquisition method, all subsequent revaluations of the same, and their write off method, the depreciation policy must correctly establish the amount of the depreciable
• The economic life of assets shall be determined in accordance with their technical characteristics, expert opinions and the conditions under which they are to be used in the operations of the enterprise. In estimating the economic life of assets and their residual /salvage/ value, the choice of depreciation method depends on a number of factors and constraints such as: warranty service period, technical characteristics of the asset, possibilities of intense use of the asset, conditions of use and the entity's policy on repairs of fixed assets, etc. Obsolescence of depreciable assets could be complied with the future plans for updating, the dynamics of the market, the condition of the rest of the entity's assets, in case they are interchangeable, and forecast data on trends in the development of new technologies. In fact it is impossible to predict all cases of recognition of non- current assets and the options for their use in the particular enterprise. The following should be taken into account: the specific operating conditions, the intensity, obsolescence and physical wear-and-tear of the asset, legal or other existing restrictions on use of the site. The periods of use of assets in the business must be periodically reviewed. The frequency of these reviews is determined in accordance with the current market dynamics and other similar factors. Generally speaking, we can differentiate them into several groups, such as - legal, economic and technical
• When carrying out repairs on an asset it is important to correctly determine the type of repair - current, where the costs incurred do not lead to an adjustment of the carrying amount of the asset repaired, or other - leading to an increase in the future economic benefits expected to be obtained from the use of the asset. In the first case, expenditures resulted from current repairs are recognised as current for the period. If asset repairs have resulted in modernisation, reconstruction and permanent improvement, then the carrying amount of the repaired asset is increased by the value of the repair, leading to adjustments in the depreciable

Considering the diversity of assets used in the operations of an enterprise, we will try to apply different criteria to differentiate between them for the purposes of better understanding and reporting. Depending on the technical characteristics and the purpose and conditions of use of the assets, we are able to classify them [4].

• According to the ownership of the assets - owned and leased. This division is directly related to depreciation in terms of determining whether the asset is depreciable or not. For example, if a depreciable asset is the property of the enterprise and is used in its operations, other things equal, the same is depreciable. However, if the enterprise is holding a depreciable fixed asset under lease, the lessee does not have the right to recognise depreciation expense on the leased asset. In this case, the lessor enterprise is the party that recognises depreciation expense on the leased asset.
• according to their use in the operations of the enterprise - commissioned and decommissioned. The enterprise is entitled to charge depreciation on assets which are brought into operation, respectively, for the period during which a depreciable asset is decommissioned;
• according to their operational purpose - production and non-production. This classification is related to the allocation of expenses recognised for depreciation and amortisation, repairs, etc. under their operational use, according to their differentiation in the accounting policies of the enterprise;
• according to their industry characteristics - assets used in manufacturing, agriculture, tourism, transport, etc. This classification requires taking into account the specifics of the used assets - furniture, machinery, buildings, special purpose vehicles, ;
• according to the type of a depreciable asset classification is as follows: land and plots, improvements to land, buildings, plant, machinery and equipment, vehicles, office equipment, other tangible assets such as tools, reusable containers, intangible assets with limited useful lives - software, patents, licenses, rights and biological assets, for which there is no active market and no possibility of determining their fair value, which under the rules of the applicable legislation are depreciated, long term financial assets and others, which meet the requirements for recognition of an asset as depreciable. This differentiation between assets provides for the creating of conditions for rational and effective reporting by type, on a synthetic and analytical level in the current
• The depreciation policy of the enterprise as part of its accounting policy is disclosed in respect to the preparation of the Report on non-current assets as part of the Notes. Any change to the accounting policy regarding non-current assets shall be duly

The main objective of accounting is to create a true and fair view of the position of the enterprise in order to meet the interests of its various users of information with the purpose of taking appropriate business decisions. For this reason, the principal rules of financial reporting are regulated. Law sources that play a significant role in the preparation of the depreciation policy of the enterprise are: Accountancy Act, the applicable accounting standards - national and international, the Corporate Income Tax Act, Commercial Law, Value Added Tax Act, Law for the Customs, Law on Excises and the relevant implementing rules, and the internal rules adopted in the operations of the enterprise. The Accountancy act gives a basic understanding of the nature of the assets, the requirements for asset valuation and inventory taking. More specific rules for the reporting of assets, including depreciable ones, are set out in the applicable accounting standards. We refer to Accounting standard 4 Depreciation accounting which is a part of the National financial reporting standards for small and medium- sized enterprises. Separate accounting standards refer to the reporting of tangible fixed assets, intangible fixed assets and to the reporting of financial and biological assets. We should add here the provisions of AS 1 Presentation of financial statements with regards to the representation of the items in the financial statements. It refers to the rules for classification of assets and their book value, as well as to the standards for the disclosure of relevant indicators in the Notes to the financial statements.

The Corporate income tax act directly refers to the amount of tax deductible depreciation of assets, and all statutory requirements for the recognition for tax purposes of costs and revenues associated with the reporting of depreciable assets and the rules for their valuation.

In continuation of the above, we would point out that the depreciation policy of the enterprise according to its degree of affiliation to the tax legislation could be considered: non-affiliated, partially affiliated and fully affiliated. If the enterprise has adopted a depreciation policy which reports for the actual wear of assets, with no regard to eligible tax deductible depreciation, then such a policy is defined as non-affiliated. If we assume that depreciation schedules which fully comply with the statutory requirements for tax purposes are prepared for part of the assets and for other assets depreciation schedules are prepared in accordance with the actual use of the assets in the operations, and it is different from the tax rate, such a policy is considered partially affiliated. The third type of depreciation policy - fully affiliated to the tax legislation, shall be prepared to comply fully with the amount of tax deductible depreciation. In all three cases, it is appropriate to prepare the so called tax depreciation schedule, along with the accounting one, in order to establish the correct accounting financial result and financial result for tax purposes. It is entirely a management decision to what extent the depreciation policy of the enterprise shall be affiliated to our tax legislation.

The methods of depreciation used for tax purposes are not compatible with those used for accounting purposes with regards to the reporting of transactions for acquisition, revaluation, repair /current and non-current/, etc., i.e. the approach in financial and tax statements is different. The purpose of accounting is to present a true and fair view of the financial performance and position of the business enterprise. The purpose of tax legislation is related to the taxation of taxpayers under the relevant regulations.

An important component of the process of charging depreciation is the estimate of amounts which are periodically calculated and carried to expenses. The amount of depreciation expense is determined by three factors: the depreciable amount, the useful use of the asset and the depreciation method. Because of the importance of these and other key categories we tried to present them in a comparative form in the following table 1.

Table 1 - A comparative form 

Table 1 Continuation

Table 1 Continuation

In summary, we would point out the following

Accounting regulations provide alternatives while the tax legislation is imperative.

Accounting regulations for the recognition of fixed assets do not explicitly state a value threshold, while the provisions of CITA do state one.

When comparing the regulations of the tax and accounting legislation, there is a uniform approach with respect to time of commencement and discontinuance of charging of depreciation of depreciable assets.

In the accounting legislation depreciable assets are treated as assets, while the tax legislation defines them as amounts, i.e. a different approach to a definition of a single category.

Tax deductible depreciation is defined in accordance with seven categories of depreciable assets. This approach does not take into account the specifics of the depreciable assets in the enterprise and their operating conditions. Accounting legislation allows interchangeability in selecting the depreciation method and useful lives of assets, which, other things equal, allows a greater compliance with the overall policy of the enterprise.

The principles of organisation of accounting are defined in the Accountancy Act. The entity is required to adhere to the same invariable rules in the different reporting periods. Thus it is possible to identify comparable performance indicators compared to previous reporting periods, as well as to plan expected indicators, in order to establish trends in the enterprise's financial position, the result of its operations, changes in cash flows and the elements of their own equity. This accounting information is mostly used by the entity's management. As long as the management team shall prepare and implement working rules in compliance with the law, other things being equal, they could expect to obtain reliable accounting information. This same information database is the main source, along with regulatory, operational, statistical and other such information, for making appropriate management decisions on the future development of the entity. The accounting information is directly related to the planning and control systems implemented in the enterprise. In other words, the accounting information, in particular the reporting and presentation of depreciable assets, affects the choice of innovative repair methods, supervision of the operation of the existing assets, the opportunities for scientific and technological research in the enterprise and others.

In conclusion, we can point out that the choice of a depreciation policy is entirely a management decision based on the aspects discussed above, which are related to the applicable legislation and the specifics of the operations in the enterprise. With this paper, we aimed to turn our attention once again to the importance of knowing and understanding the rules for depreciation of fixed assets, for the purposes of developing the depreciation policy of the enterprise, which is a part of its accounting policy, and certainly being in line with the overall management vision.

References

1. Kuter M.I. Theory of Accounting. – Moscowm,
2. Accountancy Act. SG 98 of November 16, 2001. Last amend. SG 99 of December 16, 2011. – Sofia, 2011.
3. Corporate Income Tax Act, in force as from January 1, 2007, prom. SG 105 of December 22, 2006, last. amend. SG 99 of December 16, 2011. – Sofia,
4. NFRSSME - 2008. - Sofia: Publishing House Coman,