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Accumulated Depreciation Balance Sheet CHAPTER 5 ACCOUNTING FOR DEPRECIATION AND DISPOSAL OF ASSETS

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Accumulated Depreciation Balance Sheet CHAPTER 5 ACCOUNTING FOR DEPRECIATION AND DISPOSAL OF ASSETS Powered By Docstoc
					   CHAPTER 5
ACCOUNTING FOR
 DEPRECIATION
AND DISPOSAL OF
    ASSETS
                 TERMS
   ACCUMULATED DEPRECIATION
       » Total depreciation charged to date is
         deducted from asset in Balance
         Sheet.

   ASSET REGISTER
       » Complete record of individual
         assets.

   BALANCE SHEET
       » Statement of assets, liabilities and
         owner’s equity at a particular date.

   CURRENT ASSETS
       » Assets expected to be converted to
         cash within 12- month period.
                 TERMS
                    cont...
   DEPRECIATION
       » Amount charged as an expense
         against revenue earned by the asset
         over its useful life.

   DISPOSAL OF ASSET ACCOUNT
       » Allows the:
           original cost of assets
           accumulated depreciation
           amount received on disposal to
             calculate
           profit or loss on disposal.


   NON-CURRENT ASSET
       » Asset expected to be retained by the
         business for period in excess of 12
         months.
                 TERMS
                    cont...

   PROFIT AND LOSS ACCOUNT
       » Compares revenue items with
         expense accounts to calculate Net
         Profit or Loss of a business.

   PROFIT OR LOSS ON DISPOSAL
       » Amount calculated in disposal
         account.

   REDUCING BALANCE METHOD OF
    DEPRECIATION
       » Uniform percentage of depreciation
         applied to written down value of
         asset.
                 TERMS
                    cont...
   REGISTER OF PROPERTY, PLANT
    AND EQUIPMENT
       » Complete record of individual asset.
       » Manual or computerised.

   RESIDUAL VALUE
       » Amount asset is expected to be sold
         for after end of useful life.

   STRAIGHT LINE METHOD OF
    DEPRECIATION
       » Depreciation cost allocated evenly
         over life of asset.
    NON-CURRENT ASSETS


   Acquired for use in the business.

   Not for resale.

   Expected use more than 12 months e.g.

                – Land and Buildings
                – Plant and Equipment
                – Motor Vehicles
                – Office Furniture
                – Shop Fittings
                – Computer Equipment
    CAPITAL COST OF NON-
          CURRENT
           ASSETS
   Cost of getting the asset operational.

   Associated cost added to cost of asset
    e.g.
                – Delivery charges
                – Installation costs
                – Integrated software in
                  computer systems

   These costs add to the value of an asset
    before depreciation is calculated.
          AUSTRALIAN
          ACCOUNTING
          STANDARDS
               AASB 1021
             PARAGRAPH 5.2

      In estimating the useful life of a
      depreciable asset, consideration
       must be given to the following
                  factors:
       (a)    Expected physical wear
              and tear
       (b)    obsolescence; and
       (c)    legal or other limits in the
              use of the asset.

   Depreciable amount to be allocated
    from time asset is first put to use.
           DEPRECIATION

   Recorded in General Journal




    DATE     PARTICULARS    DR      CR
30June 03 DEPRECIATION – $7 500
          MOTOR VEHICLE           $7 500
            Acc. Depreciation
          – Motor Vehicle
          Depreciation
          charged at 25%
              DEPRECIATION
                ACCOUNTS
      Depreciation Expense Account
        – Closed off to Profit and Loss at
          Financial year end.
        – Depreciation expense is debited to this
          account.

              DEPRECIATION EXPENSE
30 June 03 Acc. Depn   $1000   30 June 03 Profit & Loss $1000




       Accumulated Depreciation Account
          Shows total amount of depreciation
          accumulated since asset first used.
          Not closed off; balance sheet account.

               ACCUMULATED DEPRECIATION
                               June 03 Depn     $1000
                               June 04 Depn     $1000
                               June 05 Depn     $1000


                                                $3000
         BALANCE SHEET
            ASSETS
   Asset shown at original cost
   Less: accumulated depreciation
   Asset net value


        BALANCE SHEET (EXTRACT)


    Non-Current Assets
    Motor Vehicles            $50,000

    Less: Acc. Depreciation   $15,000   $35,000
         METHODS OF
        DEPRECIATION
   ACCOUNTING STANDARDS
       » Do not specify a particular
         method of depreciation.

    – Depreciation Methods
       » “Units of Use” method - based
         on items produced
       » “Sum of Digits” method
       » “Straight-line” method
       » “Reducing Balance” method

   AUSTRALIAN TAX OFFICE
     Allows
     – Straight Line method
     – Reducing Balance method
     to calculated allowable deduction
       STRAIGHT LINE
          METHOD
   ACCOUNTING TREATMENT

    ASSET COST                  $20,000
    EXPECTED RESIDUAL
    VALUE                       $2,000
    DEPRECIABLE VALUE           $18,000

    LIFE IN 4 YEARS
    DEPRECIATION EXPENSE
    EACH YEAR (25%)      $4,500


               Asset Cost Dep’n Exp   Acc. Dep’n
      Year 1   $20,000    $4,500      $4,500
      Year 2              $4,500      $9,000
      Year 3              $4,500      $13,500
      Year 4              $4,500      $18,000
    REDUCING BALANCE
        METHOD
   ASSET COST                     $20,000

   DEPRECIABLE VALUE                 25%

   DEPRECIATION EXPENSE 25% WDV

   EXPECTED RESIDUAL VALUE $2 000


          Asset    Dep’n Exp   Acc. Dep’n    Reduced
           Cost                                Value
Year 1   $20,000   $ 5 000     $ 5 000      $15 000
Year 2             $ 3 750     $ 8 750      $11 250
Year 3             $ 2 813     $11 563      $ 8 437
Year 4             $ 2 109     $13 672      $ 6 328


     CAN BE FURTHER DEPRECIATED TO
     RESIDUAL VALUE OF $2 000
   DISPOSAL OF
DEPRECIABLE ASSET

Original Cost
  of Asset




 Accumulated
                    DISPOSAL
 Depreciation
                    ACCOUNT
  for Asset




 Cash Receipts
      or
General Journal

                  Profit and Loss
                     Account
    STEPS TO DISPOSE
        OF ASSET
1. Calculate depreciation to date of sale.

2. Open Disposal Account in Ledger.

3. Transfer Asset cost of disposal account.
   DR: Disposal Account
       CR: Asset Account

4. Transfer Accumulated depreciation to
   Disposal Account.
   DR: Accumulated Depreciation Account
       CR: Disposal Account

5. Credit Disposal Account with Money
   Received for Asset.
   DR: Bank
       CR:     Disposal Account

6. Profit or loss is calculated on difference
   between debits or credits.
     ASSET REGISTER
  Detailed Information on individual
                 assets

FUNCTIONS:

1. Internal control identifies asset and
   location.

2. Shows complete history for
   individual assets.

3. Allows access to information used to
   calculated depreciation.

				
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