Depriciation

Question 1

what is depriciation applied to?

Answer 1

always a non current asset

Question 2

what is a non current asset?

Answer 2

long term investments where full value will not be realised within one accounting period

Question 3

what is depreciation classed as, so where does it appear?

Answer 3

classed as an expense so is recorded in an income statement

Question 4

where do non current assets appear?

Answer 4

in statement of financial position

Question 5

what is depreciation?

Answer 5

gradual reduction in the recorded value of an asset over its useful life
amount of an asset value used when generation yearly sales

Question 6

how many types of D are there?

Answer 6

4

Question 7

what are the types of deprication?

Answer 7

• straight line
• reducing balance
• sum of digits
• units of service

Question 8

what are the characteristics of the straight line method?

Answer 8

• worked out once and depreciation cost is the same for every year
• easy to calculate
• widely used
• equal annual charge to an income statement

Question 9

what is the formula for straight line?

Answer 9

cost - residual value / life of an asset

Question 10

what are the characteristics of the reducing balance method?

Answer 10

• known as declining balance
• results in highest depriciraion in first year
• more applicable to assets in which have higher productivity in start of their life
• always given the reducing balance rate and must apply this to netbook value

Question 11

what is the formula for reducing balance?

Answer 11

(netbook value - residual value) x Reducing balance rate %

do this for each year

Question 12

what is the residual value?

Answer 12

scrap cost

Question 13

what are the characteristics for sum of digits/

Answer 13

• less common
• similar depreciation rate to RB
• key digit is the years of useful life
• applies to assets with higher productivity in first year

Question 14

how do you work out the sum of digits?

Answer 14

useful life = 8 (add up the digits)
(cost - residual) / sum of digits x life at the startt of the year
the life at the start of the year reduces each year

Question 15

what are the characteristics of units of service?

Answer 15

• D is charged directly related to the assets use (hours used or units made by asset)
• more the asset is used the higher depreciation
• can be inaccurate as usage is hard to estimate

Question 16

what is the formula for units of service?

Answer 16

(cost - scrap) x use in year(no. of units) / total use (life in number of units/hours)