This arises out of the depreciation being based on a

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life than in the later years. This arises out of the depreciation being based on a percentage of the asset’s net book value – that is the cost value of the asset less all previous depreciation. Net Book Value (NBV) = Cost of asset accumulated depreciation
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Example A machine costs £25,000 and is to be depreciated using reducing balance at a rate of 20%. The depreciation charged each year would be as follows:
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Recording The expense is sent to the statement of comprehensive income The provision for depreciation is included in the statement of financial position where it reduces the cost of the asset.
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Mid-year purchases and sales Assets are bought and sold either on the first day of the firm’s financial year, or the very last day. This makes the calculation of depreciation very straightforward. However, this is unrealistic as assets will be bought and sold almost certainly at some intermediate point within the year. This will make the calculation of depreciation more complicated. As a result there are two approaches used.
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1. Depreciation can be calculated on a proportionate basis. For example if an asset is purchased some way within a year then the proportion of the year would be used in the depreciation provision. 2. Many firms will charge a full year’s depreciation in the year of purchase regardless of when, within the year, the asset is purchased. Additionally, many firms will charge no depreciation for the year if the asset is sold.
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  • Summer '17
  • dr. kipanga
  • Depreciation, Generally Accepted Accounting Principles

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