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Provision For Depreciation

Non-current assets are long-term assets used by a business to generate profits. They are depreciated over their useful lives and include property, premises, vehicles, and equipment. Depreciation is the estimated loss in value of these assets each period and is recorded through adjusting journal entries that debit an expense account and credit an accumulated depreciation account. Methods of depreciation include straight-line and diminishing balance, and depreciation is a key accounting concept along with consistency and prudence.

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1K views10 pages

Provision For Depreciation

Non-current assets are long-term assets used by a business to generate profits. They are depreciated over their useful lives and include property, premises, vehicles, and equipment. Depreciation is the estimated loss in value of these assets each period and is recorded through adjusting journal entries that debit an expense account and credit an accumulated depreciation account. Methods of depreciation include straight-line and diminishing balance, and depreciation is a key accounting concept along with consistency and prudence.

Uploaded by

Ash Inu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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2.

Bought Delivery Van and paid by cheque $50000

DR. Delivery Van A/c – 50000


DEPRECIATION
CR. Bank A/c – 50000

3. Bought Furniture from TFP Ltd. $12000


NON-CURRENT ASSETS
DR. Furniture A/c – 12000
Non-current Assets are bought by the business for long term use.
Cr. TFP Ltd. A/c – 12000
They are termed as ‘capital expenditure’. They help to generate
profits. Non-current assets are recorded in order of their value in
the statement of financial position. List of non-current assets are:- W HAT IS DEPRECIATION ?
1. Property Depreciation is an estimated loss in the value of non-current assets
2. Premises
3. Motor Van over its estimated useful life.
4. Delivery Van
5. Fixtures and Fittings CAUSES OF DEPRECIATION
These assets are subject to depreciation or revaluation.
 Passage of time
 Physical deterioration
 Economic reason
ENTRIES FOR PURCHASE OF ASSETS
 Depletion
DR – Non-Current Assets A/c

E.g. : METHODS OF DEPRECIATION


1. Bought Motor Van on cash $10000
 Straight line depreciation
Dr. Motor Van A/c – 10000  Diminishing balance
Cr. Cash A/c – 10000  Revaluation
PROVISION FOR DEPREC IATION
Formula: Dr. Income Statement

Net Book Value = Cost – Accumulated Depreciation CR. Provision for Depreciation A/c

ACCOUNTING CONCEPTS FOR DEPRECIATION DISPOSAL

 Matching concept It is the selling of non-current assets, it is a capital receipt. It is

 Consistency concept recorded in a disposal account.

 Prudence Concept
DISPOSAL A/C

ENTRIES FOR DEPRECIATION IN FINANCIAL


STATEMENTS

Income Statement for the year ended 31 Dec 2018 (extract)


Details $ $
Expenses
Depreciation of Furniture (30/100 × 15000) 4500

Statement of Financial Position as at 31 Dec 2018 (extract)


Accumulated
Non - Current Assets Cost Depreciation NBV
Furniture 15000 4500 10500
15000 4500 10500

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Work Example

Revenue Receipt

Capital Receipt

Advantages of straight line method

 Simple method to calculate


 Shows same charge each year

Disadvantages of straight line method

Advantages of reducing balance

Disadvantages of reducing balance


REVALUATION OF ASSET S

Straight-Line Method

4
Work Example

Reducing Balance
6
Work Example

Disposal
Past Exam Questions

Question 1(S23/2)

8
Work Example

Question 3

Question 2(W17/21)
10

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