Account for depreciation

Question 1

Depreciation

Answer 1

Measurement of the portion of the PPE cost that has been used up during an accounting period. It is classified as an expense

To calculate; we use the Depreciation rate and method mentioned

Question 2

Difference between Depreciation and accumulated depreciation

Answer 2

Depreciation is like when you take a toy and play with it every day. Over time, the toy gets worn out and not as valuable as it was when you first got it. We keep track of this change in value over time by calculating something called depreciation.

Accumulated depreciation is like a savings account for the change in value of that toy. Every time we calculate depreciation for the toy, we add that amount to the accumulated depreciation. This way, we can keep track of how much the toy has lost in value over time.

So, in a way, depreciation is like a measure of the toy’s value going down each year, and accumulated depreciation is like a running total of how much the toy’s value has gone down over time.

Question 3

Method 1 for depreciation -
Straight line method (Evenly spread)

Answer 3

Years: Cost - RV / Estimated useful life

Percent: (Cost - RV) * Estimated useful life %

Question 4

Method 2 for depreciation -
Reducing balance (Fixed rate)

Answer 4

NBV * Estimated useful life (%)

Question 5

Residual value

Answer 5

The expected amount for which an item of PPE is able to sell at the end of its estimated useful life.

Question 6

NBV ( net book value)

Answer 6

The difference between the PPE cost and the accumulated depreciation relating to the PPE

NBV = Costs - Accumulated depreciation

Question 7

Depreciation of PPE account

Answer 7

Year 1 – 31/12/2022

DR - Depreciation
CR - Plant and machinery accumulated
depreciation

Question 8

Acquisition of PPE

Answer 8

DR - Machinery cost
CR - Cash at bank

Question 9

T account for straight line method

Answer 9

Refer to question 1 b and c answer

Question 10

what are Disposals

Answer 10

A disposal in accounting refers to getting rid of something that your business no longer needs or wants, like selling an old car or throwing out old toys that you don’t play with anymore. When a business gets rid of an asset like a piece of equipment, the process of selling it or getting rid of it is called a disposal. This helps keep the company’s financial records up to date and makes sure that the company is only holding onto assets that it actually need

Question 11

How to record disposals

Answer 11

• Record the disposal proceeds.
  (DR Cash at bank, CR disposals of PPE)
• Reverse the PPE cost.
  (DR disposal of PPE, CR PPE cost)
• Reverse the accumulated depreciation.
  (DR PPE accumulated depreciation, CR
  Disposals of PPE)
• Calculate the profit/loss on disposal of PPE.
  Disposals - NBV

Question 12

Profit or loss on PPE

Answer 12

NBV > Disposals = Loss
NBV < Disposals = Profit
NBV = Disposals = No loss/profit

Question 13

Pro rata

Answer 13

No of Months / 12