UNIT 06 (part 03)

FINANCIAL STATEMENTS FOR SOLE TRADERS (cont…)

 Calculation of depreciation.
There are 2 methods of depreciation are to be discussed under this lesson (for A/Ls).
a. Straight line method
b. Reducing balance method

 STRAIGHT LINE METHOD

 This method is also known as depreciation on cost or equal installment method.
 Under this method, the depreciation amount is divided among its useful life
equally.
 It can be calculated using the following formula.

Annual depreciation =

Depreciation rate =

 REDUCING BALANCE METHOD

 This method is known as depreciation on carrying value or diminishing balance
method.
 Under this method, the accumulated depreciation to date (the total depreciation
up to the date on which you calculate depreciation) is deducted from cost of the
asset and depreciation is provided as a percentage.

THE HARDER YOU WORK

FOR SOMETHING, THE
GREATER YOU WILL FEEL
WHEN YOU ACHIEVE IT………..

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 Recording of depreciation.
 Asset account always shows the net book value of the asset (carrying amount).
 The journal entry to record:

………………………………………………………………………………………….

………………………………………………………………………………………….
 A separate account called provision for depreciation is maintained to record
depreciation.
 The journal entry to record:

………………………………………………………………………………………….

………………………………………………………………………………………….

 DISPOSAL OF PROPERTY, PLANT AND EQUIPMENT

 Sometimes property, plant and equipment used by an entity may be disposed
at the end or during their useful life.
 The profit or loss obtained from disposing the asset should record in the books
of accounts as follows.
 Journal entries for disposal.
a) Cost of the disposed asset.

…………………………………………………………………………………………………

…………………………………………………………………………………………………

b) Accumulated depreciation of the disposed asset.

…………………………………………………………………………………………………

…………………………………………………………………………………………………

c) Proceeds of the disposed asset.

…………………………………………………………………………………………………

…………………………………………………………………………………………………

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 d) Gain or loss from the disposed asset.
I. If there’s a gain,

…………………………………………………………………………………………………

…………………………………………………………………………………………………
II. If there’s a loss,

…………………………………………………………………………………………………

…………………………………………………………………………………………………

12) Provision for discounts

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