Depreciation of Fixed Assets, Explained

10 February 2026 · Guides

When a company buys a machine for 200,000 lei, a van or a server, it is tempting to think the whole sum weighs on that month’s result. Accounting does not work that way. An asset that will generate benefits over several years is not fully expensed in the year of purchase but recognized gradually, as it wears out and consumes its usefulness. This mechanism is called depreciation, and understanding it correctly is what separates a well-run company from one that pays the wrong tax.

Depreciation of fixed assets is, in essence, the systematic allocation of the cost of a long-lived asset over the period it is used in the business. It reflects the physical and technological wear of the asset and matches the expense to the periods in which the asset earns revenue. For a company director, depreciation is not a mere formality: it directly affects the result, the taxable profit and, consequently, the tax due.

This article explains what a fixed asset is, how useful life is determined, which methods exist, where accounting and tax depreciation diverge, and which mistakes are common. For international investors, the reconciliation with parent-company reporting adds a further layer. The topic is evergreen, but a few thresholds can change by law, so we clearly flag where the value in force must be checked.

What is a fixed asset and when it is depreciated

A fixed asset is a tangible item (equipment, machinery, buildings, vehicles, furniture) held by the company to be used in production, service delivery, rental or administration over a period longer than one year. To be treated as a depreciable fixed asset, the item must generally meet two conditions: a useful life longer than one year and an entry value above the legal threshold.

The value threshold above which an item becomes a fixed asset (rather than a low-value item expensed immediately) is set by government decision and may be updated periodically. As of writing (2026) the usual threshold is in the range of a few thousand lei; please check the value in force, because a change in the threshold alters how you record smaller purchases. Below the threshold, the item may be expensed in full when put into service.

Not everything is depreciated. Land, for instance, is not depreciated for accounting purposes because it does not wear out. Buildings on the land, however, are depreciated. Intangible assets (software licenses, patents, development costs) follow their own, separate depreciation rules.

Normal useful life and the Catalogue

How long is an asset depreciated for? The answer comes from the Catalogue on the classification and normal operating lives of fixed assets, approved by government decision. The Catalogue groups fixed assets into categories and gives, for each, a range of useful life expressed in years (a minimum and a maximum). The company picks a duration within the range and applies it consistently.

The choice of duration is not trivial: a shorter life means higher annual depreciation and thus higher short-term expense; a longer life spreads the expense over more years. Both are correct if within the range, but the effect on the result differs.

Depreciation methods

Romanian law allows several methods:

• Straight-line depreciation — the simplest and most common. The cost is divided equally across the years of useful life. A 60,000 lei asset with a 5-year life gives 12,000 lei per year (1,000 lei/month).
• Declining-balance depreciation — larger amounts in the early years and smaller ones later, obtained by applying a multiplier to the straight-line rate. Useful for assets that wear faster at the start or quickly become technologically obsolete.
• Accelerated depreciation — allows deducting a significant portion (up to a legal maximum) in the first year of operation, with the remainder spread straight-line over the remaining life. Applicable to certain categories under the Fiscal Code.

For large investments in technological equipment, declining-balance or accelerated methods can push the deductible expense into the early years, lowering taxable profit sooner — a cash-flow advantage, not a permanent saving.

Accounting vs. tax depreciation

This is where the classic confusion arises. There are two parallel depreciations, which can have different values for the same asset:

• Accounting depreciation is recorded in the books according to accounting rules and company policy. It reflects the true picture of wear and affects the accounting result in the financial statements.
• Tax depreciation is computed under the Fiscal Code and is the one deducted when calculating taxable profit. It is managed off the books, in the tax records register.

When computing profit tax, you start from the accounting result, add back accounting depreciation and subtract tax depreciation. For foreign-owned companies a third dimension appears: reporting to the parent company under IFRS or German/other national standards may require different useful lives and methods than the Romanian tax rules, meaning three perspectives to reconcile. A wrong tax depreciation means a wrong taxable profit and, therefore, tax paid wrongly — either too much (cash needlessly tied up) or too little (risk of interest and penalties on audit).

A simple step-by-step example

A company buys a machine in January for 50,000 lei, normal useful life 5 years, straight-line.

1. Entry value: 50,000 lei (acquisition cost, excluding deductible VAT).
2. Duration from the Catalogue: 5 years.
3. Annual depreciation: 50,000 / 5 = 10,000 lei/year.
4. Monthly depreciation: 10,000 / 12 = 833.33 lei/month.
5. Depreciation starts the month after the asset is put into service.

After 5 years the net book value reaches zero, even though the machine may still be in use.

Common mistakes and how to avoid them

• Fully expensing an item above the fixed-asset threshold — rejected on audit.
• Confusing the two depreciations — deducting accounting depreciation instead of tax depreciation gives a wrong tax base.
• Choosing a duration outside the range from the Catalogue — not accepted for tax.
• Forgetting disposals — selling or scrapping a partly depreciated asset has specific effects on the result.
• Ignoring special rules for vehicles, leasing or grant-funded investments.

See how we help and what our accounting and tax advisory services cover.

Conclusion

Depreciation is not a technical detail to leave to chance. It determines how much profit you report, how much tax you pay and how faithfully the balance sheet reflects reality. The correct choice of threshold, duration and method, plus a clear separation between accounting and tax depreciation, keeps the company safe at any audit and optimizes cash flow within the law.

If you have significant investments in fixed assets or report to a foreign parent company, an expert accountant can set up your asset register and depreciation policy correctly. Contact the Conta Fiscal team for a discussion tailored to your company’s situation.

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