Depreciation Flashcards
What does depreciation mean?
Spreading the cost of a non-current asset over its useful life
What are the three methods of calculating depreciation called?
Straight line method 1
Straight line method 2
Reducing balance method
Straight line method 1 =
Cost - Expected residual value
________________________
Expected years of useful life
Residual value =
Expected sale proceeds of the asset at the end of its useful life
Straight line method 2 =
Cost x stated percentage
When would you use method 2?
If you are told that depreciation is a certain percentage
Net book value =
cost - provision for depreciation
Reducing balance method =
Net book value x Percentage
What is provision for depreciation?
Accumulated depreciation on non-current assets.
Provision for depreciation =
Depreciation
What is the double entry for depreciation?
Debit ‘depreciation’
Credit ‘provision for depreciation’
Profit or loss on disposal of non-current assets =
Disposal proceeds - Net book value
Where is profit on disposal shown on the income statement?
As income after gross profit
Where is loss on disposal shown on the income statement
As an expense
What are the three accounts in relation to accounting for depreciation?
Cost of non-current assets
Provision for depreciation on non-current assets
Disposal of non-current assets
