Depreciation

System
System Posts: 100,534 🤖 Admin 🤖
edited 10:31AM in AAT student discussion
I am doing a practice question on Depreciation of fixed assets, can't remember if you depreciate the total cost of the new asset i.e delivery and fitting, or just the item. - Please help

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  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Depreciation

    Hi, I think this is correct.....

    The cost of a fixed asset, including the cost of getting the asset to its location (delivery) and in a working condition (fitting) is ALL capitalised and shown in the balance sheet and therefore this full cost is depreciated.

    Hope this is correct. Does the example explain any Company policy on determining revenue or capital expenditure?

    Carole
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Depreciation

    no, no company policy, just told what rate to depreciated etc

    The only other thing is that you have to put all you fixed assets in a Fixed Asset Register, does that too show the whole amount or just the actual cost of the asset.
    By the way thanks for replying, much appreciated.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Depreciation

    no, no company policy, just told what rate to depreciated etc

    The only other thing is that you have to put all you fixed assets in a Fixed Asset Register, does that too show the whole amount or just the actual cost of the asset.
    By the way thanks for replying, much appreciated.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Depreciation
    Chestnuttrish wrote:
    no, no company policy, just told what rate to depreciated etc

    The only other thing is that you have to put all you fixed assets in a Fixed Asset Register, does that too show the whole amount or just the actual cost of the asset.
    By the way thanks for replying, much appreciated.

    If you are choosing to depreciate the asset plus its delivery and fitting, then the cost in the balance sheet must be the cost of the asset plus its delivery and fitting.

    I can't remember what the course books said on depreciation, but all the companies I've worked for tended to write off the delivery and fitting and only depreciate the actual asset. Generally, in real life, the only exception to this is when there has been a big refurbishment project and then it is the cost of the work too.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Depreciation

    Hi, TLG is correct the cost that is used in the fixed asset register MUST be the same as the cost used in the balance sheet.

    As for the inclusion of delivery and fitting charges being capitalised, I can only quote from my college handout "Capital expenditure = the purchasing of fixed assets PLUS the cost of bringing the asset into use"

    I've looked in the BPP revision companion, which gives an example of a Co purchasing a sanding machine at a cost of £12,000. Delivery was £400 and cost of training staff to use it was £250. After initial run it was cleaned at a cost of £100.

    It states that Capital is £12'000 + £400 + £250
    and that Revenue is £100

    So I'm assuming that you need to include the delivery and fitting in the cost to be capitalised.

    I hope I haven't confused you - sorry.... Can anybody else help with this?

    I have the FTC course book, and I will dig it out and see if that can clarify it any further.

    Carole
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Depreciation

    Carole, you have the books and I don't anymore therefore you are almost certainly correct. On the example you have given, the delivery and training is such a material amount that I would include them in the asset value and depreciation in business too.

    I'm sorry if I confused the issue :s

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