Depreciation

1. Depreciation Andrew Jon Myles

2. Definition • Depreciation is the reduction in the value of fixed assets over it’s lifespan. • This comes in two forms: • Straight line – a set percentage taken from the cost of the asset • Reducing Balance – all previous years depreciation are deducted off the cost of the asset then a set percentage is taken

3. Question 1 This is the Net Book Value and goes in the Balance Sheet. • A vehicle costs £30000 • The vehicle is depreciated at 10% straight line method each year • How much is the depreciation? • Answer = £3000 This is ONE year’s depreciation, this goes under expenses in the Income Statement.

4. Question 2 • Equipment costs £50000 • It’s depreciated by reducing balance at a percent of 15 • The provision is currently 15000 • How much is this years depreciation? • Answer = 5250 • Provision + Answer = Total Depreciation This goes under NCA in the Balance Sheet The one years depreciation goes into the income statement as an expense

5. Residual value (Scrap Value) • This is where an asset has a selling value at the end of its lifespan • This means that the asset can be sold for a certain amount after it has been used • The method to work this out is: • Cost – Residual value Lifespan • An asset has a residual value because it gets worn out and used over time.

6. Question 3 • A vehicle costs £45000 • It has a residual value of £5000 • It’s lifespan is 5 years • How much would one years depreciation be? • Answer = £8000