Accounting depreciation in Andorra: criteria and application under the General Accounting Plan

Reading time: 8 minutes

🏁 Understanding accounting depreciation in the Andorran system

Depreciation is a fundamental element of accounting: it allows the cost of an asset to be allocated over its useful life and ensures that the financial statements present a true and fair view of the company’s financial position and performance.

Unlike many other countries, Andorra does not set official depreciation tables with predefined percentages or useful-life ranges. This means that companies must rely on professional, coherent and well-justified criteria.

This guide explains how depreciation works under the General Accounting Plan (PGC), the methods allowed, how useful life must be estimated and which mistakes should be avoided in practice.

📘 Legal framework and applicable principles

Depreciation in Andorra is based on:

• Law 30/2007 on the accounting of entrepreneurs (articles 19 and 23)
• Decree approving the General Accounting Plan (PGC)

From this framework arise several essential principles:

• Mandatory depreciation of all assets with a limited useful life
• No official tables, which offers flexibility but requires strong technical judgement
• Economic useful life prevails, not habitual percentages
• Supplementary application of IAS/IFRS where the PGC does not regulate a specific case (art. 19.2): IAS 16, IAS 36 and IAS 38

The Andorran system is therefore flexible, but requires solid and well-documented professional reasoning.

➤ For further context, see Accounting in Andorra: origin and structure of the General Accounting Plan (PGC)

🖇️ Assets that must be depreciated

All assets with a limited useful life must be depreciated, including:

• Tangible fixed assets: IT equipment, furniture, machinery, vehicles, installations, industrial equipment
• Intangible fixed assets: software, licences, usage rights, technological development, intellectual property with a defined useful life

The following are not depreciated:

• Land
• Assets with an indefinite useful life (brands, patents)
• Fully depreciated assets that only generate maintenance costs

📐 Essential PGC principles for proper depreciation

The PGC requires companies to apply several key principles:

✔ True and fair view

Depreciation must reflect the actual consumption of the asset.

✔ Prudence

Any obsolescence or impairment must be recognised separately.

✔ Accrual principle

The expense is recorded when the asset is used, not when it is paid.

✔ Consistency

The depreciation method must remain consistent over time unless the useful life changes.

✔ Component depreciation

Where an asset has significant parts with different useful lives, they must be depreciated separately (art. 19.1.f).

Example: structure, HVAC system, lift or electrical installations of a building.

🔧 Depreciation methods allowed in Andorra

The PGC and IAS/IFRS standards allow several methods:

• Straight-line method: equal annual charges (most common)
• Declining-balance method: higher charges in early years
• Units-of-production method: based on the asset’s actual use
• Component depreciation: mandatory where relevant
• Revaluation in specific cases (art. 24 PGC and IAS 16): fair value may be applied under strict conditions

🕒 Estimating useful life: a critical issue in Andorra

Because there are no official tables, useful life must be estimated considering:

• technical features of the asset
• expected level of use
• technological obsolescence
• industry practice
• manufacturer information
• international standards (IAS 16 / IAS 38)
• common audit practice

Examples commonly used in Andorra (non-mandatory):

• IT equipment: 3–5 years
• Software: 3–5 years
• Furniture: 5–10 years
• Vehicles: 5–7 years
• Industrial machinery: 5–10 years
• Installations: 8–15 years
• Leasehold improvements: 10 years

The key is not the number itself, but the coherence of the criterion and its documentary justification.

🔍 When should useful life be reviewed?

Useful life must be reassessed whenever:

• the expected use of the asset changes
• accelerated obsolescence appears
• impairment is identified
• operational processes or needs evolve

If the original estimate is no longer appropriate, it must be updated and disclosed in the notes to the financial statements.

⚠️ Common mistakes in Andorran accounting practice

The absence of official tables often leads to errors such as:

• Excessively long depreciation periods (e.g., servers over 10 years)
• Overly short depreciation periods without technical justification (artificially reducing profits)
• Failure to recognise impairment despite real obsolescence
• Lack of documentation explaining the estimated useful life
• Using tax depreciation tables as if they were accounting criteria (very common mistake)
• Stopping depreciation while the asset is still in use (contrary to Law 30/2007)

🧾 Why proper depreciation matters

Correct depreciation provides:

• Transparency in financial statements
• Better interpretation of solvency
• Easier audits and due-diligence processes
• Compliance with the true-and-fair-view principle
• Fewer risks when filing annual accounts
• Increased confidence from banks, partners and investors

A well-designed depreciation policy is a cornerstone of corporate credibility.

Conclusion

Accounting depreciation in Andorra is not based on fixed tables but on professional judgement, accounting principles and real economic useful life. Applying it correctly requires a solid understanding of the PGC, IAS/IFRS standards and local business practice.

If you would like to review your company’s depreciation policy or need ongoing accounting support, you can request a personalised meeting below or contact us through the form. We will be pleased to assist you.

Last revision date: November 2025.