7. Depreciation

Question 1

What is the purpose of depreciation

Answer 1

Allocates expenses between periods, non current value

Question 2

2 methods of depreciation

Answer 2

1. Straight line method
2. Reducing balence

Question 3

Straight line method

Answer 3

(cost - residual value)/ no . of useful life

• uses cost/ book value

Question 4

Reducing balence

Answer 4

Carrying value x reducing balence

• Uses Current Amout/ net book value

Question 5

How does depreciation adjusts statements at the end of the year

Answer 5

• Expenses ( lowers profit) on statement of Profit/ Loss
• Assets ( lows assets) on the statement of financial positioning

Question 6

How to account for disposal

Answer 6

1. Eliminate costs
2. Eliminate accumulated depreciation
3. Amount for sale proceeds
4. Transfer gain or loss to Statement of profit and loss

Question 7

What happens when proceeds are higher and lower than carrying value

Answer 7

• If Higher = profit ( lowers expense in S of P/L)
• If lower = Loss (increases expense in S of P/L)