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  • DEPRECIATION

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    Candice Boodoo
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    The document discusses depreciation, which is the portion of a non-current asset's original purchase cost that is consumed during its period of use by a business. There are four key factors that cause depreciation: physical deterioration, economic obsolescence, time expiration, and depletion. Depreciation is calculated annually using either the straight-line or reducing balance method, such as by taking the cost price minus the estimated disposal value and dividing it by the number of years of use. For example, if a car was bought for $22,000 and kept for 4 years until being sold for $2,000, the annual depreciation would be $5,000.

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    The document discusses depreciation, which is the portion of a non-current asset's original purchase cost that is consumed during its period of use by a business. There are four key factors that cause depreciation: physical deterioration, economic obsolescence, time expiration, and depletion. Depreciation is calculated annually using either the straight-line or reducing balance method, such as by taking the cost price minus the estimated disposal value and dividing it by the number of years of use. For example, if a car was bought for $22,000 and kept for 4 years until being sold for $2,000, the annual depreciation would be $5,000.

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    8 views2 pages

    DEPRECIATION

    Uploaded by

    Candice Boodoo
    The document discusses depreciation, which is the portion of a non-current asset's original purchase cost that is consumed during its period of use by a business. There are four key factors that cause depreciation: physical deterioration, economic obsolescence, time expiration, and depletion. Depreciation is calculated annually using either the straight-line or reducing balance method, such as by taking the cost price minus the estimated disposal value and dividing it by the number of years of use. For example, if a car was bought for $22,000 and kept for 4 years until being sold for $2,000, the annual depreciation would be $5,000.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 2

    DEPRECIATION

     
    Depreciation is the part of the original purchase cost of a non-current asset consumed during its period of use by the
    business.
    Depreciation is an expense.

    What are the four key factors that causes depreciation to be charged to a non-current asset?
    1. Physical deterioration – wear and tear
    2. Economic factors – Obsolete, inadequate
    3. Time factor – non current assets that have a legal life that expires, eg lease or patent
    4. Depletion.

    What are the methods used to calculate depreciation charge per year?
    1. Straight-line method
    2. Reducing balance method
    1. Straight-line Method

    • Depreciation per year = Cost price – Estimated disposal value

    Number of years of use

    Qus 1: If a car was bought for $22 000 and the business decided to keep it for four years then sell it for $2 000,

    what will be the depreciation to charge?

    Depreciation per year = Cost price – Estimated disposal value

    Number of years of use

    Dep = 22 000 – 2 000

    Dep = $5 000 per year

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