Depreciation accounting content power point.pptx

this ppt contains the content of depreciation, which is more than important to the accounting study. students will know the different types of depreciation and methods of depreciation calculation.

1. ACCOUNTING CONCEPT AND ACCOUNTING CONVENTION

2. Depreciation Non-current assets are long-term assets that will be used by a business over several accounting periods. The journal entry for the purchase of non-current assets is: Dr Non-current assets Cr Bank/trade payables B oth entries are entered into the statement of fnancial position, no expense has been recorded. Nevertheless, these assets do cost the business some form of expense. They have a limited life and, over time, sufer from a loss in value due to business using the asset. This loss in value is known as depreciation .

3. CAUSES OF DEPRECIATION Non-current assets depreciate for several reasons. These include: the condition of an asset progressively getting worse over a period of time technical obsolescence reduction of natural resources the passage of time in the case of leasehold property (buildings).

4. M ethods O f D epreciation The methods of depreciation include: straight line method reducing balance method revaluation method.

5. S traight L ine M ethod This method allows for the same amount to be charged each year as an expense. The business estimates the all in economic value of the non-current asset and takes into account any value that it may receive for that asset at the end of its life. Depreciation per year = Cost – residual value / Useful economic life Depreciation per year = (Cost − residual value*) × Depreciation rate (%)

6. S traight L ine M ethod

7. Reducing Balance Method Under this method, a f i xed percentage of depreciation is applied to the asset each year based on the carrying value. Some non-current assets do not fall in value equally over their lives. To use this method, we need to have a f i xed annual depreciation rate (%) which is then applied to the carrying value each year. The carrying value ( 账面价值 ) is calculated by subtracting the accumulated depreciation from the cost of the non-current asset.

8. Reducing Balance Method

9. Revaluation Method This method is used where there are many small but important items, e.g. an electrician’s tools. Under the concept of materiality small_x0002_value items, such as a home ofce printer, are likely to be written of. To use this method, the assets are valued each year and the fall in value is the depreciation for that year. The carrying value is calculated by valuation. In this method only the reduction in value is taken into account in the statement of proft or loss and other comprehensive income and there is no increase in the value of the asset.

10. Revaluation Method

11. Practical example

12. Practical example

13. Practical example