Professional Documents
Culture Documents
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FIXED ASSETS
Assets acquired not for resale.
Examples :
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CAUSES OF DEPRECIATION
Physical Deterioration
Obsolescence
Depletion of an asset
Passage of Time
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PHYSICAL DETERIORATION
- printing machines
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OBSOLESCENCE
Pentium I
Examples - cars
- computers
Pentium IV
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DEPLETION OF FIXED ASSETS
- Quarries
- Little Guilin is a depleted granite quarry now
turned into a beautiful lake.
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PASSAGE OF TIME
Some assets confer upon their holders the
exclusive rights to enjoy certain privileges
for a fixed period of time.
Examples - copyrights
- patent rights
- leases on land
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METHODS OF DEPRECIATION
Straight-Line
Units-of-output
Reducing Balance
Double-declining-balance
Revaluation
Sum-of-the-years'-digits
STRAIGHT LINE METHOD
Example:
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STRAIGHT LINE METHOD
Advantages
- Easy to calculate.
- Easy to understand.
Disadvantage
- Assumes fixed asset gives same amount of service annually
throughout its useful life.
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STRAIGHT LINE METHOD (I)
= $4,500
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Balance Sheet as at 31 Dec 1999
Fixed asset
Office equipment $16,000
Less Prov. for dep. 2,000 $14,000
Fixed asset
Office equipment $16,000
Less Prov. For dep. 4,000 $12,000
Dep
O/E
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IMPORTANT FEATURES:
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REDUCING
BALANCE METHOD OF
DEPRECIATION
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REDUCING BALANCE METHOD
The amount of depreciation per year diminishes with
every successive year.
Example:
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REDUCING BALANCE METHOD
Advantage
- Overall expenses ( including repairs and maintenance)
charged for the use of a fixed asset would be fairly
constant.
Disadvantages
- Difficult to calculate.
- Assets are always left with a small value at the end of
useful life.
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REDUCING BALANCE METHOD
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REDUCING BALANCE METHOD
Net Book
Depreciation Value
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