DEPRECIATION
Depreciation= the apportioning/spreading of the cost of the non current assets over their useful life
Causes of depreciation= Physical deterioration from use, non current asset is outdated
Depreciation policy= business may set rules on depreciation (eg full year of depreciation when purchase
depreciation in the year of sale)
Accruals/matching concept= depreciation measures the use of non current assets and ensures the inco
statement and SOFP show a true and fair view
Consistency concept= the same basis for depreciation should be used every year until the business ado
of depreciation to use consistently over the life of the non current asset
Straight line method (formula)
Reducing balance method (% x NBV)
Use a % rate of depreciation
Cost-depreciation= NBV
, Recording depreciation in ledgers
You set up a T account called ‘provision for depreciation a/c
Depreciation is always on the credit side
Depreciation= the apportioning/spreading of the cost of the non current assets over their useful life
Causes of depreciation= Physical deterioration from use, non current asset is outdated
Depreciation policy= business may set rules on depreciation (eg full year of depreciation when purchase
depreciation in the year of sale)
Accruals/matching concept= depreciation measures the use of non current assets and ensures the inco
statement and SOFP show a true and fair view
Consistency concept= the same basis for depreciation should be used every year until the business ado
of depreciation to use consistently over the life of the non current asset
Straight line method (formula)
Reducing balance method (% x NBV)
Use a % rate of depreciation
Cost-depreciation= NBV
, Recording depreciation in ledgers
You set up a T account called ‘provision for depreciation a/c
Depreciation is always on the credit side
