depreciation and disposals Flashcards
(13 cards)
what are property plant and environment used for
held for use in production or supply of goods and services
when are the PPE expected to be used
used during more than one period
within PPE what do you debit and credit
debit at costs
credit trade payables
within the accruals concept when does the entity receive benefits of the PPE
Over period it is used in the business
what equation does IAS 16 give to recognise the depreciation expense
depreciable amount/ useful economic life
formula for depreciable amount
cost - residual value
(residual value is expected value of asset at end of its life )
how to find useful economic life
length of time the asset is expected to be used by the entity (matter of judgment)
. land is not depreciated
how to work out net book value
cost - accumulated depreciation
how do you work out the net book value depreciation for year 2
eg expense was 6k originally, add it on again therefore 12k. then cost - accumulated depreciation (12k)
how to work out depreciation using reducing balance method
% x net book value
how to work out depreciation using reducing balance method in year 2
eg expense was 6.2k and percentage was 20% and cost was 31k,
20% x (31-6.2) = 4.96
6.2 + 4.96 = 11.16
31k - 11.6k = 19.84k
how to find profit or loss on disposal
debit the cash of 10k as in cash but need to find the credit
1. find profit or loss ( sales proceeds - net book value)
buys van for 20k and depreciated on straight line bass over its useful economic life of 5 years. at end of year 2 van sold for 10k
profit/ loss = 10k - net book value
20k - (20k/5x2) = 12k
10k - 12k = (2k) loss
10k cash and 2k loss
debit cash 10k and credit 20k
debit accumulated depreciation 8k
debit loss on sale of van 2k
this shows debit and credits both up to 20k
