Podcast
Questions and Answers
What is the primary reason for depreciating non-current assets?
What is the primary reason for depreciating non-current assets?
- To spread the cost of the asset over its useful life, recognizing the expense gradually. (correct)
- To reflect the gradual decline in the asset's market value over time.
- To track the actual physical wear and tear on the asset.
- To ensure that the asset can be easily replaced when it reaches the end of its useful life.
Which of the following is NOT a reason for depreciating non-current assets?
Which of the following is NOT a reason for depreciating non-current assets?
- To ensure that the financial statements accurately reflect the asset's true value.
- To reduce the amount of tax payable on the asset.
- To account for the gradual wear and tear of the asset.
- To provide a fund for the replacement of the asset at the end of its life. (correct)
What is the accounting concept that states a business must use the same method of depreciation for a particular type of non-current asset each year?
What is the accounting concept that states a business must use the same method of depreciation for a particular type of non-current asset each year?
- Going Concern
- Materiality
- Consistency (correct)
- Matching Principle
Which of the following statements is TRUE regarding depreciation?
Which of the following statements is TRUE regarding depreciation?
What is the main difference between the straight-line method and the reducing balance method of depreciation?
What is the main difference between the straight-line method and the reducing balance method of depreciation?
What is the depreciation charge for year 2?
What is the depreciation charge for year 2?
What is the carrying value of the asset at the end of year 3?
What is the carrying value of the asset at the end of year 3?
What is the formula to calculate the carrying value at the end of year 3?
What is the formula to calculate the carrying value at the end of year 3?
What is the carrying value after year 1?
What is the carrying value after year 1?
What is the purpose of a provision for depreciation account?
What is the purpose of a provision for depreciation account?
What is the formula to calculate the carrying value of an asset using the percentage method?
What is the formula to calculate the carrying value of an asset using the percentage method?
What is the carrying value after 2 years, using the percentage method?
What is the carrying value after 2 years, using the percentage method?
What is the initial entry for depreciation recorded in?
What is the initial entry for depreciation recorded in?
In what account is the yearly depreciation charge recorded at the end of the financial year?
In what account is the yearly depreciation charge recorded at the end of the financial year?
What is the closing balance of the provision for depreciation account equal to?
What is the closing balance of the provision for depreciation account equal to?
Where is the yearly depreciation charge recorded on the income statement?
Where is the yearly depreciation charge recorded on the income statement?
What is the carrying value of a non-current asset calculated as?
What is the carrying value of a non-current asset calculated as?
Which account is credited when recording depreciation for the year?
Which account is credited when recording depreciation for the year?
Where is the accumulated depreciation of a non-current asset displayed on the statement of financial position?
Where is the accumulated depreciation of a non-current asset displayed on the statement of financial position?
What is the opening balance of the provision for depreciation account carried over from?
What is the opening balance of the provision for depreciation account carried over from?
What is the opening balance of the Equipment account at the beginning of the year ended 29 February 2024?
What is the opening balance of the Equipment account at the beginning of the year ended 29 February 2024?
On which side of the Equipment account is the purchase of additional equipment recorded?
On which side of the Equipment account is the purchase of additional equipment recorded?
Why is there no depreciation recorded in the Equipment account for the year ended 29 February 2024?
Why is there no depreciation recorded in the Equipment account for the year ended 29 February 2024?
What is the total cost of the equipment at the end of the year ended 29 February 2024?
What is the total cost of the equipment at the end of the year ended 29 February 2024?
On which side of the Provision for Depreciation account is the opening balance recorded?
On which side of the Provision for Depreciation account is the opening balance recorded?
What is the carrying value of the equipment before charging depreciation for the year ended 29 February 2024?
What is the carrying value of the equipment before charging depreciation for the year ended 29 February 2024?
How much depreciation is charged on the Equipment account for the year ending 29 February 2024?
How much depreciation is charged on the Equipment account for the year ending 29 February 2024?
What is the carrying value of the equipment at the end of the year ended 29 February 2024, after accounting for depreciation?
What is the carrying value of the equipment at the end of the year ended 29 February 2024, after accounting for depreciation?
What is the straight line method of depreciation's assumption about the value of a non-current asset over its useful life?
What is the straight line method of depreciation's assumption about the value of a non-current asset over its useful life?
Which of these factors is NOT used to calculate straight-line depreciation?
Which of these factors is NOT used to calculate straight-line depreciation?
What happens to the carrying value of an asset when it is fully depreciated?
What happens to the carrying value of an asset when it is fully depreciated?
Why would the straight-line method be a suitable approach to depreciating fixtures and fittings?
Why would the straight-line method be a suitable approach to depreciating fixtures and fittings?
In the given example of an asset costing $20,000 with a 15% depreciation rate, what would the annual depreciation expense be?
In the given example of an asset costing $20,000 with a 15% depreciation rate, what would the annual depreciation expense be?
In the straight-line method, what is another term for 'residual value'?
In the straight-line method, what is another term for 'residual value'?
When applying the straight-line method, how is the depreciation rate typically expressed?
When applying the straight-line method, how is the depreciation rate typically expressed?
What is the main difference between 'depletion' and 'depreciation' as discussed in the context?
What is the main difference between 'depletion' and 'depreciation' as discussed in the context?
If a business sells a non-current asset for a lower amount than its carrying value, what does this indicate?
If a business sells a non-current asset for a lower amount than its carrying value, what does this indicate?
What is the correct journal entry to record the sale of a non-current asset for cash?
What is the correct journal entry to record the sale of a non-current asset for cash?
A business is selling a non-current asset for $10,000. The asset's carrying value is $12,000. How would this transaction be reflected in the income statement?
A business is selling a non-current asset for $10,000. The asset's carrying value is $12,000. How would this transaction be reflected in the income statement?
What is the correct account to record the proceeds of a sale of a non-current asset?
What is the correct account to record the proceeds of a sale of a non-current asset?
Which of the following is a key difference between a cash sale and a credit sale of a non-current asset?
Which of the following is a key difference between a cash sale and a credit sale of a non-current asset?
When a non-current asset is disposed of through part-exchange, the value of the old asset is used to:
When a non-current asset is disposed of through part-exchange, the value of the old asset is used to:
Why is it important to calculate the depreciation charge of a non-current asset in the year of sale?
Why is it important to calculate the depreciation charge of a non-current asset in the year of sale?
What does the carrying value of a non-current asset represent?
What does the carrying value of a non-current asset represent?
Flashcards
Depreciation
Depreciation
Depreciation is the reduction in value of non-current assets over time.
Purpose of Depreciation
Purpose of Depreciation
To account for the estimated loss in value of an asset during a period.
Types of Depreciation Methods
Types of Depreciation Methods
The two main methods are Straight Line and Reducing Balance.
Consistency in Depreciation
Consistency in Depreciation
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Non-Current Assets
Non-Current Assets
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Depletion
Depletion
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Straight Line Depreciation
Straight Line Depreciation
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Carrying Value
Carrying Value
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Depreciation Rate
Depreciation Rate
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Residual Value
Residual Value
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Useful Life
Useful Life
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Constant Rate
Constant Rate
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Depreciation Calculation
Depreciation Calculation
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Depreciation Charge
Depreciation Charge
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Provision for Depreciation
Provision for Depreciation
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Depreciation Calculation Method
Depreciation Calculation Method
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Original Cost
Original Cost
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Accumulated Depreciation
Accumulated Depreciation
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Calculation of Year 3 Depreciation
Calculation of Year 3 Depreciation
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Determining Carrying Value
Determining Carrying Value
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Recording Depreciation
Recording Depreciation
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Income Statement Depreciation
Income Statement Depreciation
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Closing Balance of Depreciation
Closing Balance of Depreciation
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Statement of Financial Position Values
Statement of Financial Position Values
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Cost in Financial Statements
Cost in Financial Statements
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Equipment Account
Equipment Account
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Additional Equipment Purchase
Additional Equipment Purchase
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Depreciation Charge Year
Depreciation Charge Year
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Balance Brought Down (b/d)
Balance Brought Down (b/d)
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Balance Carried Down (c/d)
Balance Carried Down (c/d)
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Provision for Depreciation Account
Provision for Depreciation Account
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Carrying Value Calculation
Carrying Value Calculation
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Total Cost of Equipment
Total Cost of Equipment
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Disposal of Non-Current Asset
Disposal of Non-Current Asset
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Proceeds of Sale
Proceeds of Sale
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Other Receivables Account
Other Receivables Account
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Part-Exchange
Part-Exchange
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Profit or Loss on Sale
Profit or Loss on Sale
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Calculating Profit Loss Steps
Calculating Profit Loss Steps
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Study Notes
Edexcel IGCSE Accounting
- Depreciation is applied to non-current assets to show the reduction in value over time
- Depreciation is an expense that accounts for the estimated loss in value of an asset each period
- Depreciation is used to spread the cost of an asset over its expected useful life
- Depreciation does not represent cash outflow
- Two methods for calculating depreciation are the straight line method and the reducing balance method
Causes of Depreciation
- Wear and Tear: Assets lose value due to use and physical deterioration
- Obsolescence: Assets lose value as technology advances making them less useful
- Passage of Time: Assets often have a fixed lifetime
- Depletion: Assets are used up completely; for example, natural resources
Straight Line Depreciation
- Assumes a constant rate of depreciation over an asset's useful life
- The depreciation expense is the same each year
- Carrying value can reach zero when fully depreciated
- Can use the depreciation percentage OR the number of years the asset is expected to be used and the salvage value
- Formula: Depreciation = (Original Value - Expected Value) / Useful Life
Reducing Balance Depreciation
- Assumes a higher depreciation rate in the early years and smaller depreciation rates in the later years, reflecting the fact that assets lose value most rapidly early on.
- Deprecates an asset at a fixed percentage of its carrying value each year.
- Method is useful for assets where value depreciates faster initially
- Formula: Depreciation = Carrying Value x Depreciation Rate
Provision for Depreciation
- A provision for depreciation accounts records the depreciation of a non-current asset
- Shows the accumulated depreciation over time
- Used for calculating the carrying value
- Depreciation charges are recorded each year in the provision account
- No entries are made in the non-current asset account for depreciation
- Debit the income statement
- Credit the provision for depreciation account
Disposal of Non-Current Assets
- Business can sell non-current assets when no longer needed
- Sale can be a cash sale or a credit sale
- Disposal accounts record the profit or loss from the sale of a non-current asset
- To calculate the profit or loss from the sale, find the carrying value, then calculate the difference between the proceeds of the sale and the carrying value, and then determine if it is a profit or loss.
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