W5 Flashcards
A decrease in the value of a non-current asset
Depreciation
Depreciation is recorded as a/an _______________ in the statement of profit or loss; however, in the statement of financial position, the ______________ is reduced by the depreciation charge.
expense; cost of asset
Gives the same depreciation expense every year
Straight-line method
Formula for depreciation expense
Cost - estimated residual value/useful economic life
is the estimated amount that a non-current asset will be worth at the end of its useful life
residual value
is the expected length of time that a non-current asset will be used in the business.
useful economic life
is the total depreciation that has been charged on an asset since it was purchased. This is deducted from the cost of an asset to arrive at its net book value
accumulated depreciation
cost of an asset - accumulated depreciation
Net book value
A depreciation charge that starts out high then reduces over time
Reducing balance method
Dep’ expense formula
% x NBV of an asset at the start of the year
arises when a customer who owes money to the business for goods or services received on credit becomes unable to pay the amount due. At that time it should no longer be included in the trade receivables figure as it does not represent an asset.
Bad/doubtful debt
How do you account a bad debt?
Subtracting it from trade receivables, and show it separately as an expense in the statement of profit or loss
is an amount deducted from trade receivables to recognise that a proportion of those amounts will eventually not be received by the business
Provision for doubtful debts
requires that, when accounts are being prepared, income should never be anticipated but all possible costs should be taken into account
Prudence concept
How do you account provision for bad debts?
As expense in profit or loss statement, and as a reduction in trade receivables
is an asset without any physical substance. Examples include goodwill and brand names.
Intangible asset
Are purchases assets or expenses?
Expenses
Depreciation is accounted as an _________ in the profit or loss statement, and it is accounted as a ______ in the cost of a non-current asset every year.
expense; reduction
Bad debts is accounted as an _________ in the profit or loss statement, and it is accounted as a ______ in the net book value of a non-current asset every year.
expense; reduction
Bad debts and provision for bad debts are two different ______.
expenses
