Depreciation.
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Im studying Interemdiate and thought i was 'clued up' on depreciation. The BPP text i'm using explains straight line depreciation as being a fixed amount deducted form the original cost of a fixed asset, the amount deducted being based upon the life of the asset and its disposal price (if any). However, i've been thumbing through some past papers and came accross a question asking for a 15% deduction on an asset on the straight line basis. I was under the impression a percentage amount applied in the reducing balancing method. Please help!
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Comments
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Depreciation.
Both straight line and reducing balance depreciation can be expressed as a percentage, and usually will be in the financial statements. This is just an indication of how long the asset is being depreciated over. In this instance there is presumably a residual balance being allowed for after the 6 years of the asset's life. At work we often have 25%, ie no residual value after 4 years. Its just another way of expressing things ;-)0 -
Depreciation.
If the question is asking for for deprecition of 15% on the straight line method, is this simply 15% of the ORIGINAL cost? As i understand it, if it asked for 15% on reducing balance method I would take 15% of the CURRENT value of the asset (ie original value minus any depreciation already accounted for).0 -
Depreciation.
Quite right on both counts. A percentage given with the reducing balance method means apply that percentage to net book value (cost minus depreciation to date) whilst a percentage given with the straight line method means apply that percentage to original cost. In other words, the reducing balance method gives a lower charge each year (percentage applied to a reducing balance), whilst the straight line method gives the same charge each year (percentage applied to a fixed amount).0 -
Depreciation.
Sorted! Thanx Melanie and Andy0