AC120 lecture 7

1. AC120 lecture 7 • Depreciation • Reducing balance method • Bad debts and provision for bad debts

2. Methods of calculating depreciation expense • Reducing balance method • Depreciation expense based on net book value each year • Reducing depreciation expense each year • Bought motor vehicle originally for €16,000. Depreciation policy is 50% reducing balance

3. Which method? • Management decide which is most appropriate • Reducing balance method appropriate where asset benefit to be consumed in the early years of its useful life • Straight line method appropriate where benefit is gained evenly over the life of the asset • Relationship with repairs and maintenance

4. Bad debts • Management must decide • Accounting treatment of bad debt write offs • Provisions for probable future bad debts

5. References • Wood, chapters 24, 25, 26 • Britton and Waterston, chapter 6 • Thomas, chapters 11 and 12