Depreciation

Question 1

What is depreciation?

Answer 1

Depreciation is to spread the cost of an asset over its useful life

Question 2

What is straight line depreciation ?

Answer 2

Straight line depreciation is when an asset is depreciated by a set amount each year

Question 3

What is reducing balance depreciation ?

Answer 3

Reducing balance depreciation is when an asset is depreciated by a set percentage of its remaining value each year

Question 4

What is amortisation ?

Answer 4

Amortisation is an accounting practice of spreading the cost of an intangible asset over its useful life eg a patent , trademark

Question 5

What method is amortisation reduced by ?

Answer 5

Amortisation is typically expensed on a straight line basis , where same amount is reduced each period

Question 6

What are prepayments ?

Answer 6

Prepayments - expense is made in advance to the period of which it relates to eg rent

Question 7

What are accurals ?

Answer 7

Accurals are expenses paid after the period of which it relates to eg electricity bill

Question 8

What are 4 ways that the statement of comprehensive income can be analysed ?

Answer 8

Statement of comprehensive income can be analysed in a number of ways ;
-comparison between figures within the statement eg profit as a percentage of sales revenue
-comparisons between years eg gross profit this year compared to last year
-intrafirm comparisons to see how different aspects of the business are performing eg revenue for one product or branch
-interfirm comparisons to see how the business is performing in relation to its competitors