Chalter 4 Flashcards
How do non-current assets get prepared in the financial statements?
The cost of the asset should be spread over the periods in which the asset is used
What is known as depreciation?
The process of allocating the cost of non-current assets to different financial periods
What is the definition for depreciation?
The charge of the statement of profit and loss to reflect the use of non-current asset during the period
What is depreciation charge?
The amount of depreciation charged to the statement of profit or loss each year
Where did they need to Depreciate non-current assets Come from?
The accruls concept
How would depreciation be entered into the accounting records?
A journal entry
What does depreciation amount mean?
The cost of the asset less the residual value
What is residual value?
The amount the asset is expected to be sold for at the end of it’s useful life
What is the definition of useful life?
The period of time the business expects to make use of the asset
Define the carrying amount
The value of which the asset is shown in the statement of financial position, calculated as the cost of the asset less accumulated depreciation
Define accumulated depreciation
The total of the depreciation charged on an asset to date
Are lands. & buildings a depreciable asset
Land isn’t but houses are
What are the two methods for calculating depreciation?
Straight line method and diminishing balance method
What is straight line method?
A method of calculating depreciation to give the same charge each year
What is the most common depreciation method?
The straight line method
What is the calculation for the straight line depreciation charge?
Depreciation charge equals cost take away residual value divided by useful life years
Define the diminishing balance method
A method of calculating depreciation so that a larger amount is charged in the earlier years and smaller amounts in subsequent years
What does the method of depreciation calculate?
The annual depreciation charge as a fixed percentage of the carrying amount of the asset, as at the end of the previous accounting period
When might the diminishing balance method be used?
When is his thought that the benefits obtained by the business from using the asset decline overtime e.g. a machine in a factory where productivity falls as the machine gets older
What is the formula for diminishing balance method?
Depreciation equals depreciation rate x carrying amount
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What is depreciation in the profit or loss statement?
An expense
What are the general ledger account set up for depreciation?
Debit depreciation charge SPL and credit noncurrent asset accumulated depreciation SFP
