Financial Accounting: Depreciation & Fixed Assets Mastery

Define the asset cost as the total amount to acquire, bring to the location, and make ready for intended use.

Identify useful life as the period assets are expected to be used. Charge depreciation over useful life, not economic life, as shown by iPhone and car examples.

Compute net book value by subtracting accumulated depreciation from cost, revealing the remaining undepreciated value of non-current assets. For a 100,000 machine with 30,000 depreciation, net book value is 70,000.

Explain fair value as the market value of a non-current asset estimated from market information and demand, reflecting the price market players are willing to pay today, independent of depreciation.

Depreciation systematically allocates asset cost over its useful life to match revenue and record annual expenses in the income statement; provision for depreciation shows total depreciation for net book value.

The straight line method depreciates an asset evenly over its useful life based on cost and residual value, with depreciation calculated as cost minus residual value divided by useful life.

Determine depreciation using straight-line method when no percentage is given by applying one divided by the useful life to the cost, and illustrate with a $100,000 building over 10 years.

Apply the straight line method with a full year depreciation policy at 10% per annum, calculating annual depreciation from each asset’s purchase date with a constant amount.

Apply the straight line method with pro rata depreciation based on months of ownership. Learn through C1 to C4 scenarios to see months-based adjustments when buying or disposing assets.

Explore the reducing balance method, which charges depreciation on net book value, higher in early years for machinery and equipment and lower later, as shown in the $50,000 example.

Master the reducing balance depreciation method at 10%, calculating yearly depreciation on net book value (carrying value) with full-year depreciation in the year of purchase.

Apply the reducing balance method on a monthly pro rata basis to compute depreciation at 10%, determine net book value, and illustrate with cars C1, C2, and C3.

Revalue non-current assets to their fair value when there is a significant difference between net book value and market value, upward or downward as shown by buildings and portable tools.

Master the revaluation of loose tools: compute opening balance, adjust for purchases and disposals, reinstate to fair value, and record a surplus or deficit with journal entries.

Revalue property by calculating net book value, compare with fair value to determine surplus or deficit, remove depreciation, and set fair value as the new cost for depreciation.

Learn the asset cost account for non-current assets in the depreciation chapter. See increases on the asset's debit side, cash credited, and how opening and closing balances flow.

examine the provision for depreciation account, noting opening balance on the credit side and a journal entry debiting profit and loss and crediting provision for depreciation for non-current assets.

Learn how to use ledgers and t-accounts to apply straight-line depreciation at 10% with monthly first-year prorating, through multiple assets and the provision for depreciation.

Apply reducing balance depreciation at 5% per year based on month of ownership for three machines, and construct the asset and provision for depreciation ledgers.

Learn how to dispose of non-current assets by passing disposal entries to remove asset cost and depreciation, as shown with M1, M2, and M3 using a monthly reducing-balance method.

Master disposal of fixed assets by following four rules: remove all records, stop depreciation, record cash received, and recognize the gain or loss on disposal.

Compute gain or loss on disposal by comparing net book value (cost minus depreciation) with selling price, and report the result in the profit and loss statement.

Analyze how to prepare the disposal account, remove asset cost and depreciation from ledgers, and compute gain or loss on disposal using net book value and selling price.

Master depreciation under the reducing balance method for two cars, and prepare cost, depreciation, and disposal ledgers to compute the disposal loss of 3,846 when C1 is sold.

Learn how part exchange uses an old asset as a trade-in to acquire a new asset, including trade-in value, depreciation, disposal effects, and journal entries.

Explore part exchange ledgers for motor vehicles, applying the 25% reducing balance depreciation, update disposal and provision for depreciation, and calculate year-end loss on disposal from trade-in value.

Practice a comprehensive schedule of non-current assets, applying depreciation policies for land and buildings, motor vehicles, and loose stools, including extensions, additions, disposals, and revaluations.

Explore how a schedule of non-current assets lists asset categories such as land and buildings and motor vehicles, recording balances, additions, disposals, and depreciation to determine closing net book value.

Explore how depreciation affects the profit and loss, gain or loss on disposal, other comprehensive income, balance sheet net book value, and the cash flow statement.

Explore why depreciation estimates change, from tech advances to usage shifts and standard changes, and learn how these prospective adjustments affect profitability, asset values, and notes to accounts.

Learn how changing the useful life from ten to five years, with no residual value change, affects depreciation under the straight-line method, updates net book value, and reduces profit.

Update depreciation after raising residual value to 30,000, recomputing with updated nbv 132,500 and a 5-year remaining life, yielding 20,500 depreciation and higher 2023 profit.

Recalculate depreciation under the reducing balance method, shifting from 30% to 35% in 2023, update net book value to 171,500, and illustrate how higher depreciation lowers profit and asset value.

Change depreciation from straight-line to the reducing balance method at 25 percent, updating net book value to 250,000 and recording 62,500 depreciation for 2023, lowering profit and asset value.