Transcript Balance Day Adjustments - Philip Talapati

Balance Day Adjustments
What is a Balance Day
The Last day of Accounting
Year
Example: 31 March 20XX
What is Depreciation
•
Depreciation is
specifically
defined as the
systematic
allocation of the
depreciable
amount of an
asset over its
useful life.
Remember
The depreciable amount of the
asset is its cost less residual
value.
Residual value is the amount the
business thinks it might receive at
the end of the assets useful life
when it sells the asset
Important notes
Depreciation is a measure of the use of an asset
(consumption of future benefit).
Depreciation is a method of allocating cost - to
recognise use of the asset
Depreciation is based on historical cost
When accumulated depreciation is subtracted from
the historical cost of the asset the result is called the
carrying amount
Methods and when to use
Straight line depreciation
• Is used when the pattern
of usage of an asset and
the contribution it makes
towards generating
revenue occurs evenly
throughout its useful
lifetime
• Is often based on a
percentage applied to
cost with the assumption
that the residual value is
taken as zero
Straight line Method
•
Depreciation:
Cost – Salvage value
Useful life of the asset
Diminishing value
•
Is used when
assets wear out
quickly or are
likely to
contribute
more to
revenue in the
earlier years of
their useful life
Units of use method
•
Is used when
an assets life
can be readily
measured in
units, for
example hours,
kilometres, and
the asset’s use
may vary from
period to
period
Units of Use method
Depreciation :
(Cost – Residual Value) X Usage in the year
Estimated total usage