Annual depreciation help

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Becks27
Becks27 Registered Posts: 3 New contributor 🐸
in Financial Accounting: Preparing Financial Statements
Hello there. Im doing a practice paper and getting myself muddled with accumulated depreciation. The question says that a machine was purchased for £16,500 plus VAT. Do I include the gross amount when working out annual depreciation or ignore the VAT and use the net amount. Thank you.

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  • anony123
    anony123 Registered Posts: 542 Epic contributor 🐘
    Depreciation is always charged to the cost of the asset excluding the VAT, and yes the bet. Although when it does relate to company cars then the VAT is included. I did this exam 2 years ago, and it should give sone idea in the question. It also depends on whether they are VAT registered.
  • moralesmark
    moralesmark Registered Posts: 2 New contributor 🐸
    When figuring up depreciation, don't include VAT; just use the machine's net value. The machine costs £16,500, which includes 20% VAT. The net cost is £16,500 ÷ 1.2 = £13,750. The net amount should be used to calculate depreciation. By taking away VAT, vatcalc.dev makes it easy to figure out the net amount.

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