depreciation question

half year convention就真係未聽過
double declining真可以教到你
你件equipment咪有set定一個用得既年期既
我當係5年先
咁第一年就會將book value乘2/5(double)
得出果年depreciation
之後第2年就係將book value減番之前既所有既depreciation(accumulated depreciation)再乘2/5
寺到最後一年(第5年)就係將剩下既depreciate晒佢
如果件野係10年既,就係乘2/10,如此類推,總之個份子就一定係2

Depreciation

When a company buys a building or a piece of equipment, the cost is capitalized, or set up in an asset account. One of the principles of accounting is matching revenue with expense. If we own a building that is rented out as a store and offices, then it is involved in the production of revenue. How do we match the cost of the building to the revenue? A common denominator among all fixed assets is that they last longer than one year and therefore they participate in generating many years’ revenue. That is where the concept of depreciation comes in – taking the cost of an asset and spreading it over the years that will benefit from having the asset.

There are two common methods for depreciating an asset, straight-line and declining-balance. To calculate depreciation, three things have to be known: the cost of the asset, the method used to depreciate it, and its useful life. There is also a concept known as salvage value, but salvage value is used so infrequently in practice.

(1)Straight-line depreciation

Straight-line depreciation is simple to understand: you take the depreciable cost (cost – salvage value) of the asset and divide it by the asset’s useful life.

Each asset account will have its own associated accumulated depreciation account. The accumulated depreciation account has a credit balance, and since the account it is associated with is an asset account, it is a contra account, in this case a contra-asset account.



Note that there is no accumulated depreciation for land. This is because, based on accounting convention, land is not depreciated.
(2) Declining-balance depreciation

Declining-balance depreciation is a method of accelerated depreciation. That means that you have more depreciation in the early years of the asset’s life and less in the later years. This fits the matching principle: Since assets are usually more productive in their early years, they will be involved in producing more revenue during those years, and therefore more of the cost should be charged to expense during those years.

The common types of declining balance are 125%, 150%, 175%, and 200%; 200% declining-balance is also called double-declining-balance (DDB). All the methods work the same way; the only difference is the percentage applied.

DDB rate =
Depreciation expense = Beginning book value x DDB

Partial year depreciation

It is seldom the case that the company acquires the asset on the first day of the year. How do you handle acquisitions during the year? One simple method is proration based on how much month of the year is left. For example, if you acquired the asset on February 3, you might calculate depreciation using whichever method you have selected, and then take eleven-twelfths of that amount during the first year.

Goto Exercise 16
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Retirement

It’s a company keeps an asset until it is fully depreciated, then gets rid of it, this is called a retirement. The entry for a retirement removes both the asset account and the accumulated depreciation account.

The easiest way to handle the entry for retirement is to (1) debit the Accumulated depreciation account for the depreciation taken, and then (2) credit the asset account (for the asset’s cost), (3) debit anything that was received (if the asset was sold or traded, usually a cash), and (4) if you still need a debit to balance the account, you have a loss; if you need a credit to balance the account, you have a gain.

Cash 45,000
Accumulated depreciation 63,000
Loss on sale of machine 12,000
Machinery120,000

Cash 45,000
Accumulated depreciation 94,080
Machinery120,000
Gain on sale of machine 19,080

When you are selling or trading in the asset, you have to remember to take a partial year’s depreciation in the last year (prorated to the day of disposal or based or based on the company’s policy).