What is depreciation?
the loss of value of an asset after you purchase it.
the measure of the loss in value of a fixed asset over its useful economic life.
the cost price minus the reselling price.
When estimating depreciation, the business will take into consideration the estimated residual value of the asset.
Straight Line method of depreciation the value of the by the amount each year.
method of depreciation reduces the value of the asset by a smaller amount each year.
The main causes of depreciation are;
Natural usage (wear and tear)
An unwanted asset
Obsolescence
End of useful economic life
Passage of time
All of the above
If depreciation is not charged, profits will be overstated and the balance sheet will not show the true value of the asset.
Depreciation is an expense.
Depreciation effects the Balance Sheet
Reducing Balance method illustrated on a graph will have an upward slope.
Disposal of an asset effects the following account(s);
Profit & Loss
Balance Sheet
Asset Account
Sales Account
Provision for Depreciation Account
Disposal Account
When calculating depreciation, you must only take into consideration the year the item was purchase or sold.
True: the depreciation is charged on a yearly basis
False: you must take into consideration the month the item was purchased or sold.
The Trade-in Allowance will effect your profits for the year.
