Depreciation

Question 1

What is depreciation

Answer 1

It is fixed/tangible assets losing their value owing to usage, wear and tear and obsolescence

Question 2

What type of account is depreciation

Answer 2

An imputed expense

Question 3

What 2 concepts apply to depreciation

Answer 3

The matching concept and the prudence concept

Question 4

What is the accounting equation for depreciation

Answer 4

Debit depreciation -O

Credit accumulated depreciation on vehicles or accumulated depreciation on equipment -A

Question 5

What are the two types of depreciation

Answer 5

The cost price / fixed method and the diminishing/ carrying value method

Question 6

How do you calculate depreciation on the cost price/ fixed method

Answer 6

The depreciation is the same per annum. It is a certain percentage of the cost price (historical cost)

Question 7

What is accumulated depreciation

Answer 7

The sum of the previous years depreciation

Question 8

What is the carrying/ book value

Answer 8

Tells you what a specific asset is worth at that specific moment in time

Question 9

How to calculate depreciation on the carrying value/ diminishing method

Answer 9

First calculate carrying value
carrying value = cost price - accumulated depreciation

Then calculate depreciation
Carrying value multiplied by certain percentage per annum. The depreciation will change (get smaller / diminish) per year