Archive about 'Depreciation & Provision'

Basic Key Terms Used in Depreciation Accounting

Tweet In accordance with international  accounting standard, the following are the basic key terms used in depreciation accounting for fixed assets: DEPRECIATION is the allocation of the depreciable amount of an asset over its estimated useful life. Depreciation for the accounting period is charged over net profit or loss for the period either directly or […]

Explain the advantages and disadvantages of using Annuity method or system to calculate depreciation of fixed assets

Tweet { See article on the different methods of depreciation of fixed assets } Below are some of the advantages and disadvantages of using the annuity method or system :   Advantages: Useful method to use in respect to long-term lease which generally involve considerable capital outlay Interest on capital investment is taken into account. […]

Explain the advantages and disadvantages of using the Diminishing or Reducing balance method, fixed percentage on diminishing balance method or written down value method of depreciation of fixed assets

Tweet {  Note that the diminishing balance method is also known as the reducing balance method, fixed percentage on diminishing balance method or written down value method of depreciation – see the article on the different methods of depreciation}   See earlier article on details of this method. Below tabulates the advantages and disadvantages of […]

Explain the advantages and disadvantages of using the Straight line, fixed or equal instalment method of depreciation of fixed assets

Tweet { Note that the straight line method is also known as the fixed or equal instalment method}  See earlier article on details of this method. Below tabulate the advantages and disadvantages of using the Straight Line method:- Advantages: Over the period of useful life of the fixed asset, the total burden of depreciation and […]

Name nine (9) depreciation methods of fixed assets?

Tweet The different methods to calculate depreciation of fixed assets are: Fixed or Equal Installment method or Straight line method or Fixed Percentage on Original Cost method Diminishing or Reducing Balance method or Fixed Percentage on Diminishing Balance method Revaluation method Depreciation fund or Sinking Fund method Annuity method Insurance policy method Depletion or Production […]

Briefly explain what are the three main methods of calculating depreciation provisions for assets bought or sold during an accounting period

Tweet Three methods namely: A  FULL year’s depreciation is charged in the year of purchase ignoring the dates during the year that the assets were purchased. No depreciation is charged in the year that the assets were disposed of irrespective of how many months they were in use No depreciation is charged in the year […]

Is the net book value of fixed assets in the balance sheet represens or equal to its current “market value”?

Tweet Some would presume that the value of a fixed asset in the balance sheet namely: (a)    Cost less accumulated depreciation; or at (b)   Revalued amount less accumulated depreciation Is equal to or represent its current “market value” The answer  is that generally the net book value of a fixed asset is NOT necessarily remotely […]

Is it true that as depreciation reduces profits and does not take cash out of business, it is a way of keeping cash inside the business to provide for the eventual replacement of the asset at the end of its life?

Tweet It is wrong to think that way due to: (a)    By charging depreciation on fixed assets, it does not mean that a business will set aside the same amount of cash in a bank account to provide for the replacement of the asset. It is important to understand that depreciation is NOT a way […]

What are some reasons for the asset register not reconcile with the non-current assets?

Tweet Reasons include the following: Assets stolen or damaged Obsolete New assets not yet recorded in the register Improvements not yet recorded in the register Errors in the register

What details about a non-current asset might be included in an asset register?

Tweet Some major details which should be included in an Assets Register:- Date of purchase Description Original cost Depreciation rate and method Accumulated depreciation to date Date and amount of any revaluation Value of improvement to the asset