Basic Key Terms Used in Depreciation Accounting

In accordance with international  accounting standard, the following are the basic key terms used in depreciation accounting for fixed assets:

  1. 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 indirectly
  2. DEPRECIABLE ASSETS are assets which :
  • are expected to be used during more than one accounting period;
  • have a limited useful life; and
  • are held by an enterprise for use in the production or supply of goods and services, for rental to others, or for administrative purposes

3. USEFUL LIFE is either:

  • the period over which a depreciable asset is expected to be used by the enterprise; or
  • the number of production or similar units expected to be obtained from the asset by the enterprise

4.   DEPRECIABLE AMOUNT of a depreciable asset is the historical cost or other amount substituted for historical cost in the financial statements, less the estimated residual value.


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