Depreciation is the cost of the fixed asset which has been consumed. It is applied over the fixed or permanent nature assets. For example,machinery, vehicle, furniture, computers etc. However, keep in mind that though Land is a fixed and permanent nature fixed asset, it is not depreciated and it usually gains appreciation and not the depreciation.
An entity cannot ignore the recoding of the depreciation expense in every accounting period because assets consume their value with each production and passage of time. If the entity is not recording the depreciation in their accounting records, it is actually misrepresenting the financial statements which results in increased profits and overstated fixed asset’s value.
Fixed asset cost
It involves all the costs including the purchase price, import duties, taxes, carriage-in & cost of installing the fixed asset.
Residual value
It is also called the scrap value or salvage value and it means a value which the asset can get after the expiry of the useful life from the sale.
Useful life
It refers to the number of years an asset can be used in the operations or production of the entity. It can be expressed in a number of hours as well. But mostly, it is denoted in the number of years.
Check out our newest post Multiple Choice Question on Depreciation Accounting !
We have covered various methods of depreciation. Here we are sharing question answer for Straight Line method. JK Co. bought a heavy duty machinery for its production process on July 1, 2008 at a price of $ 200,000 with credit terms of…
This is the most simple method of depreciating the fixed asset. Here, we split the cost of the fixed asset over the useful life which results in equal depreciation expense charged every year. The formula to calculate depreciation is as…
Fixed assets are subject to depreciation each year. Companies use various methods of depreciation to account for the depreciation expense. As we have covered Depreciation and its different methods in past, it is the right time to do some quizzes to refresh your memories…
There are variety of methods of depreciation. The method used depends upon the nature of the business, nature of the asset and the industry. Most common method of depreciation are as under: Straight line Write down value (WDV)/ Declining balance …