What is a reasonable formula for depreciation of photography equipment?

Question

I've recently started a company for my photography pursuits and am trying to lay down accounting terms on how will equipment be depreciated to help planning cash flow for sustainable balance sheet.

Perhaps I'm being naive, but I hope the balance sheet would approximately reflect true value of company assets. On the other hand, I would not want to track market value of each item separately, hoping that separating items into categories (e.g. bodies, lenses, flashes, lighting accessories, computer software, computer hardware) and having a depreciation formula for each category would do.

Based on what I've read so far, I'm inclining towards reducing value of bodies 25% a year; flashes and accessories 20% a year; lenses 10% a year. But I could be way off.

How does photographic equipment depreciate over time?

Answer

There are two things here - there's the balance sheet and there's reality:

For the reality part you should plan your cash flow and expenses so you have money for equipment, for example, the top of the line Canon and Nikon DSLRs cost something in the $6000-$7000 range, so if you use them and you replace bodies every 4 years you should make sure to have $7000 per camera extra cash left over every 4 years - depreciation doesn't really comes into play here.

For the balance sheet your government has strict rules about depreciation and if you don't follow them you will get into trouble, those rules that can be simple or extremely complex depending on where you are and how your business is structured - but they generally have absolutely nothing to do with the real market value of used gear.

You have to take care of both aspects, if you don't plan according to your gear replacement schedule with no regard to depreciation you won't have money to replace your gear - and if you don't depreciate your gear strictly according to the rules you can get into really big trouble.

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