{m}.{s}.1Summary: Depreciation

Depreciation

Depreciation is a method of allocating the cost of assets to the years in which they are expected to be in use.

Net book value (NBV) = Written down value = Cost - accumulated depreciation

Straight line depreciation:

Depreciation = % x Cost

Reducing balance depreciation

Depreciation = % x Written down value

To record depreciation:

 

Dr Cr
Depreciation expense xx  
Asset- Accumulated depreciation
  xx
[{m}.{s}a]

{m}.{s}.2Disposals

Disposals
Asset - cost xxx Proceeds xxx
P&L gain xx Asset-accumulated depreciation. xxx
  xxx   xxx
       

Record proceeds

Proceeds - credit to Disposal of assets account

Transfer cost

 

Dr Cr
Asset- cost   xx
Disposals xx  
[{m}.{s}b]

Transfer accumulated depreciation

 

Dr Cr
Asset- accumulated depreciation xx  
Disposals   xx
[{m}.{s}c]

The balance in the Disposals account is the gain or loss on sale to be transferred to the profit and loss account.

less Expenses  
Depreciation xx
Gain on Sale of asset (x)

 

{m}.{s}.3Accounting concepts and conventions

In stating fixed assets at net book value, the following concepts, conventions and desirable qualities have been applied:

Historical cost convention
Transactions are recorded at their value at the time of occurrence.
Going concern concept
The entity will continue in existence for the foreseeable future.
Accruals concept
Non-cash effects of transactions and other events should be reflected in the financial statements for the accounting period in which they occur.