• thinkigcse.com

Depreciation

Depreciation may be defined as the permanent and continuing diminution in the quality or the value of an asset.  William Pickles

Depreciation is the gradual and permanent decrease in the value of an asset from any cause. R.N. Carter.

  • Depreciation is fall in the value of the fixed assets (except Land).
  • Depreciation is charged as an expense in the Profit and Loss Account in order to spread the cost of a fixed asset over the asset’s useful life.
  • Depreciation is charged on a continuous basis. Once the depreciation is charged, it must be charged on regular basis in the succeeding period also.

Calculation of Depreciation

Straight line or Fixed Installment Method

A fixed or equal amount is to be charged as depreciation every year during the life time of the asset. The amount of depreciation remains equal from year to year. The expected lifetime of the asset is calculated and the cost of the asset is spread over its lifetime.

Depreciation expense per annum=Original cost/number of years of useful life

If the fixed asset is expected to have a scarp value at the end of its useful life, then

Depreciation expense per annum= (Original cost-Estimated scrap value)/Number of years of useful life

Reducing Balance or Diminishing Balance Method

The value of asset goes on diminishing year after year, the amount of depreciation charged every year also goes on declining. Every year a fixed percentage of the net book value of the asset is reduced. For example 20% depreciation is charged. If the asset has a value of $10000, the depreciation for the first year will be 20% of $10000 i.e. $4000. The book value for the next year will be now $6000. This year the depreciation will be again 20% of the remaining value i.e. 20% of 6000=$1200. So the remaining value of the asset is now $6000-$1200=$4800.

Revaluation Method

Under this method, the fixed asset is valued at the end of every accounting period. The difference between its value at the end of the period and the beginning of the period will be the depreciation for that period.

Depreciation expense=Value of asset at the end-Value of asset at the beginning + Any new purchase

Exciting News!

IMPORTANT MESSAGE

Quizzes and worksheets on this website have been developed in Flash format. Flash is no more supported by browsers. Therefore, you might see blank pages on some instances. Install Flash player plugin for Chrome from Chrome Web Store. Click here 

Similarly, for other web browsers you will have to activate the relevant flash player plugins.

JOIN OUR ONLINE COURSES

New Youtube Channel - ThinkIGCSE

Hi Everyone, I have launched a new YouTube channel with more than a 100 videos on  Economics and Business Studies, tailored specifically for IGCSE and A Level and IBDP students.

Subscribe now and join us on this learning journey: @thinkIGCSE

WHO'S ONLINE

We have 207 guests and no members online

Save
Cookies user preferences
We use cookies to ensure you to get the best experience on our website. If you decline the use of cookies, this website may not function as expected.
Accept all
Decline all
Read more
Analytics
Tools used to analyze the data to measure the effectiveness of a website and to understand how it works.
Google Analytics
Our website uses Google Analytics to understand how you interact with our site and improve your browsing experience. These cookies collect information in an anonymous form, including the number of visitors to the site, where visitors have come from, and the pages they visited. The data helps us analyze trends and user behavior to enhance our website's functionality and content.
Accept
Decline
Marketing
Set of techniques which have for object the commercial strategy and in particular the market study.
Marketing
Our website uses Google marketing cookies to deliver personalized ads and measure the effectiveness of our advertising campaigns. These cookies track your online activity to help us show you relevant ads on Google services and partner websites.
Accept
Decline