To create your business project, step by step, we chose to create a restaurant business. We have reached the point where we need to calculate the depreciation and amortization that arise from the planned investment and initial capital.
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Table of Contents
We discussed the business model and built, with the defined strategy, the sales plan and production cost integrated into the business plan.
We defined the investments, evaluated the necessary raw materials, as well as external supplies and services.
Next, we created a strategy for human resources and quantified that strategy in the cost of labor.
1. Operating results
We thus arrived at a first result in the form of the “Income Statement” that follows:
We have not yet calculated the cost of depreciation and amortization, but we already have an idea of the result in the first year, € 36.805
2. What are depreciations and amortizations
Depreciation and amortization are the values that we think are appropriate for our tangible and intangible assets, respectively, if they depreciate, due to wear or obsolescence, throughout their useful life.
Examples of tangible assets are buildings, vehicles, equipment, etc. When they are bought they have a value but, over time, their value decreases. This loss of value, which we calculate, is depreciation.
Intangible assets, in turn, may be subject to amortization, such as software programs, trademarks and patents, copyright, among others.
Depreciation is on physical, tangible assets and amortization on assets that are associated with rights, intangibles.
The values that can be used are subject to certain rules, namely, you cannot depreciate a vehicle in 20 years, because the useful life is shorter.
To know these values, it is necessary to consult the table of depreciation and amortization, within the scope of the Regulatory decree establishing this regime.
3. Amortization and Depreciation of each Investment
In summary, we present the table with the investments that we considered necessary.
With some financial needs still to be determined, the table shows that our initial capital needed for the project, at the moment of the evaluation, is € 20.000
We have evaluated the necessary kitchen equipment at € 10.000 and the depreciation rate that should be considered for these cases is 33,3%. It means that it is fiscally correct to consider this equipment as having a useful life of 3 years, being, at the end of that period, totally depreciated (3 years x 33,33% = 100%). These are tangible or tangible assets.
In this context, we did not present intangible assets, subject to amortization, such as permits, trademarks, patents or other rights that have their use limited in time. Amortization is made according to the time when such exclusive use can be made.
4. The necessary starting capital
As for financial charges, we will consider that we do not need loans and, therefore, there are no interest and financial charges to consider.
We can always choose not to purchase some of this equipment and try to find a rental or leasing solution, if possible. This possibility can be an alternative to the acquisition of assets and the consequent need for initial capital.
With the previous table we know that we need € 20.000, of which € 15.000 to invest in tangible and intangible assets (subject to depreciation and amortization) and € 5.000 in miscellaneous expenses not subject to these procedures or, to put it another way, being amortized in one year.
5. Depreciation and amortization plan
As you can see, in the item that has a 33,33% depreciation, the value only appears in the first 3 years.
6. Year 1 Operating Result
The Operating Result in the first year is positive and € 27.947!
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