Zemam Academy

Fixed assets and depreciation

You bought a vehicle for 300,000. It isn't this year's expense — it's something you'll use for five years. So instead of taking the whole cost at once and showing a loss, you spread it across the years that benefit. That's depreciation. Let's cover when to capitalize, how depreciation is calculated, and what happens when you sell or scrap the asset.

Fixed asset or expense?

The difference isn't what the thing is, it's how long you benefit from it. Ink and paper are consumed this month — an expense. The printer will serve you for three years — an asset. The practical test is two questions: will you use it beyond a year, and is its value material relative to your size? If both are yes, you capitalize it.

Why does it matter? Because it changes the shape of your profit. If you expense a 300,000 vehicle in one month, that month looks like a disaster and the following months look better than reality. Depreciation fixes this: each month takes its share of the cost, so profit reflects the truth.

Net book value: cost minus what has been depreciated

Vehicle — cost on purchase day300,000

− Accumulated depreciation after two years(120,000)

= Net book value today180,000

The original cost never changes in the books — what grows is the accumulated depreciation beside it. So you can always answer: what it cost, how much has been depreciated, and what is left.

There is a third number: salvage value — what you expect the asset to be worth at the end of its life. Depreciation is calculated on (cost − salvage), not the full cost, because you do not depreciate away value you expect to recover.

The four depreciation methods

Method	How it works	When to use it
Straight line	The same amount every month across the useful life	The majority: furniture, buildings, fit-outs, office equipment
Declining balance	A percentage of the remaining book value — heavier early, lighter later	Things that lose value fast early on: laptops, phones, vehicles
Units of production	By actual usage, not by elapsed time	A machine that wears by running hours, or a vehicle by kilometres
No depreciation	No depreciation is ever charged	Land and artwork — assets with an indefinite life

All four are available in Zemam — chosen per asset, or set as the default on an asset category. Land is the important example: it is not depreciated, because its useful life is indefinite.

An asset's life cycle in Zemam

1Registration — with its entry

You register the asset and state how it was funded: paid in cash from a treasury account, on a supplier's account, contributed by the owner, or an asset you already owned before adopting the system. That choice determines the credit side of the entry — so capitalization is posted correctly from the first moment, not patched in later.

2Register and custody

If you bought three vehicles on one invoice, you register one asset with a quantity of 3 — and the system creates three units, each with its own number, barcode and serial, each assignable to a different employee in a different branch. The accounting stays at the asset level; custody is tracked per unit, and every handover is written to a permanent log.

3The monthly depreciation run

You create a run for the month and see a preview: every asset, its method, its book value before and after, and the amount. You review, approve, and the month's entry posts. If you spot a mistake after approving, you can void the run. The month of purchase is prorated by days by default — an asset that started on the 20th doesn't take a full month's charge.

4Revaluation

When an asset's fair value genuinely differs from your books — a property, say — you revalue: the system eliminates the accumulated depreciation, restates the asset to fair value, and posts the difference to a revaluation surplus in equity (or to P&L where it reverses an earlier loss on the same asset). Depreciation then continues on the new basis.

5Disposal

Sold, scrapped or written off. The system closes out the cost and the accumulated depreciation, records the proceeds into a treasury account or onto the customer's account for a credit sale, and posts the difference as a gain or loss on disposal. If the asset had been revalued, the remaining surplus is transferred to retained earnings.

Limits we state plainly

Runs are monthly. If your policy is annual, that runs as twelve monthly runs — there is no yearly per-asset scheduling.
GL accounts are per category. Each asset category carries its own asset, accumulated depreciation and depreciation expense accounts — not a separate sub-account per asset. That is deliberate: a thousand assets should not mean a thousand accounts in your chart.
Estimates lock after the first posting. Method, life and salvage cannot be edited once depreciation has posted, so the posted entries stay consistent with the schedule. A genuine change in estimate goes through revaluation.
Web only. The asset screens are on the web app — they are not in the mobile app.
Rates and lives are your call. The system calculates, posts and presents — but useful life, salvage value and the capitalization threshold are accounting judgments set by your company's policy and your chartered accountant.

Frequently asked questions

When do I record something as a fixed asset vs an expense?

Two questions: will you use it for more than a year, and is its value material relative to your size? If both are yes, it is a fixed asset depreciated over years. If not, it is this year's expense. Most companies set a capitalization threshold (say 5,000 EGP) so they aren't registering every chair as an asset. That threshold is your company's policy, set by your accountant.

Does depreciation take money out of the bank?

No. The cash left once, the day you bought the asset. Depreciation just spreads that cost across the years that benefit from it — an entry that reduces profit and never touches cash. That is why a company can show lower profit while the bank balance is unchanged.

I have assets from before I started using the system — what do I do?

You register them at original cost and enter the accumulated depreciation already charged up to a given date; the system carries on from there — it does not replay past years or write into closed periods. This is a distinct registration route from a new purchase, so genuine capital stays clearly separate from opening balances.

Can I change the useful life after depreciation has started?

The system locks the depreciation estimates (method, life, salvage) the moment the first depreciation posts — so the schedule and the posted entries stay consistent. If the estimate genuinely changed (the machine will last longer or shorter), the accounting-correct route is a revaluation, which has its own screen: it resets the basis and spreads the remainder over the new life.

I sold an asset for a different amount than its book value — what is the entry?

The difference between proceeds and book value is a gain or loss on disposal. The system closes out the asset's cost and its accumulated depreciation, records the proceeds (into a treasury account, or onto the customer's account for a credit sale), and posts the difference to gain or loss on disposal — one balanced entry. Retiring or scrapping without a sale books the loss the same way.

Does depreciation post automatically every month?

By default, no — you run the month yourself, see a preview of every asset and amount before approving, and can void the run if something looks wrong. Automatic posting exists as an option you switch on in settings; then the system posts the last closed month by itself, exactly once. We keep it off by default because depreciation is an accounting judgment, not something that should appear in your books unannounced.