Depreciation
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Very confused about depreciation can anyone help? <BR><BR>In my AAT books it talks about how depreciation helps business to complie with the accruals concept (that cost should be matched with the income they help to produce) and the given definition of depreciation in the text book is the measure of the cost of the fixed asset that has been consumed during the accounting period.<BR><BR>But see I have always learnt depreciation as the estimated lost in value (the wear and tear). When doing a disosal account you work out the profit and loss on disposal by taking the original cost and substracting the accumulated depreciation to give NBV. Then you find the difference between the NBV and the proceeds received (if any). So surley the NBV is the amount you would hope to sell it for, so depreciation must be the lost in value.<BR><BR>I'm so confused. What would I say if i had to comment on why a business charges depreciation to their accounts?<BR><BR>Can anyone help???<BR><BR>Also, i'm doing some past papers and a question has come up about prime cost. Does any one know how you work out the prime cost can't seem to find it in text books.<BR><BR>If anyone can help me, please e-mail at gg@whitmarsh.co.uk<BR><BR>Thanks so much<BR><BR>Gemma<BR>
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Depreciation
Depreciation is a measure of the cost of an asset spread over its useful economic life. If you expect it to last 5 years then you depreciate the cost less anjy expected sale proceeds over 5 years. It is usual, with a wasting asset such as P & M to charge a higher amount in earlier years in part to compensate for the greater efficiency and smaller down time in early years compared with later. In later years we would expect repairs charge to be higher, so we are smoothing out the total cost of purchase and maintenance. <BR>The profit/loss on disposal is just a balancing figure to ensure that the total amount debited to P/L over the life of the asset is the original cost less sales proceeds.<BR><BR>At no time are we attempting to track the market value of the asset, depreciation deals with cost only, unless the asset is revalued, a separate question altogether.0 -
Depreciation
Hi Gemma, <BR><BR>This has nothing to do with accounts but are you from Weymouth? (I used to go to school with someone called Gemma Groves)<BR><BR>Good Luck in your exams anyway!!<BR><BR>From Gemma Bell0 -
Depreciation
Hi Gemma<BR><BR>Prime cost = Direct Labour + Direct Materials + Direct Expenses.<BR><BR>Prime cost is also referred to as Direct Cost, this is what may be in your text books.<BR><BR>Hope this helps<BR><BR>Jasper x0