depriciation final presentation
Post on 03-Apr-2018
219 Views
Preview:
TRANSCRIPT
-
7/28/2019 Depriciation Final Presentation
1/23
Presentation
Financial
Accounting
-
7/28/2019 Depriciation Final Presentation
2/23
Muhammad Afzal 11-Arid-830
M.Tufail Madni 11-Arid-842
Ishfaq Ahmad 11-Arid-820
1
2
3
Group Members:
-
7/28/2019 Depriciation Final Presentation
3/23
Fixed Assets and Depreciation
Objectives:
1. Definition
2. Causes
3. Factors
4. Methods
-
7/28/2019 Depriciation Final Presentation
4/23
Defination of Depreciation
Depreciation is defined as the expensing
of the cost of an asset involved in
producing revenues throughout its useful
life.Assets depreciate for two reasons:
Wear and Tear
Obsolescence
-
7/28/2019 Depriciation Final Presentation
5/23
Depreciation
Depreciation is calculated as follows:
The original cost of the asset, including costs
of acquiring the asset, transporting it, and
setting it up
Less the salvage value
Divided over the years of useful life of the
asset.
-
7/28/2019 Depriciation Final Presentation
6/23
1. Depreciable Assets
2. Non-Depreciable Assets
Feehold Land
Leasehold Land
Investment Property
Depreciation
-
7/28/2019 Depriciation Final Presentation
7/23
You can depreciate property only if it meets thefollowing requirements:
It is used in business or held for the production of income.
It must be expected to last for more than one year. In otherwords, it must have a useful life that extends substantially
beyond the year it was placed in service. It is property that wears out, decays, gets used up, becomes
obsolete, or looses value from natural causes.
Depreciable property can be either tangible or
intangible.
What can be depreciated?
-
7/28/2019 Depriciation Final Presentation
8/23
Tangible Depreciable Property
Purchased property you can see or touchLivestock (purchased)
Machinery
Buildings and improvements, fences
Dams, ponds, or terraces
Irrigation systems and water wells
Partial business use
You can claim depreciation on the part of a vehicle
used in the business.
-
7/28/2019 Depriciation Final Presentation
9/23
When depreciation begins & ends?
Begins
When you place the property in
service.
When it is ready and available for aspecific use in the business
Example
When it was bought for thebusiness
Ends
When the cost of the item has been
recovered or when it is retired from
service, whichever happens first
Example
When it is sold or is not longer
useable
-
7/28/2019 Depriciation Final Presentation
10/23
Causes of depreciation
Custom or usage With some types of fixed assets for example cars
and other vehicles ,there are customs which have
been established,on the rate of wear and tear
normally expected every year
Abnormal occurences
Accidents
Defects in materials
-
7/28/2019 Depriciation Final Presentation
11/23
Causes of depreciation
Excessive wear and tear
Contingent occurences
Technological developments New equipments superceding the existing ones
eg:calculators replacing abacus
Change in manufacturing methods
Obsolecscence
-
7/28/2019 Depriciation Final Presentation
12/23
Factors of Depreciation
1) Cost of asset (include expenses and capital expenditureincurred eg. The installation fees, the legal fees)
2) Estimated useful life of asset
This is the number of years that the asset is expected to be used)
3) Residual or scrap value of the asset
This is the value of the asset at the end of its life.
4) Method of calculating depreciation
-
7/28/2019 Depriciation Final Presentation
13/23
-
7/28/2019 Depriciation Final Presentation
14/23
-
7/28/2019 Depriciation Final Presentation
15/23
Methods of Depreciation
The depreciation expense can also be calculated by writingoff a fixed percentage of cost of the asset.
Straight-line depreciation produces a constant depreciationexpense. At the end of the asset's useful life, the asset isaccounted for in the balance sheet at its salvagevalue.
1- Straight-Line Depreciation Method
-
7/28/2019 Depriciation Final Presentation
16/23
2- Declining Balance Method
The double-declining balance method is a type
of accelerated depreciation method thatcalculates a higher depreciation charge in the
first year of an asset's life and gradually
decreases depreciation expense in subsequent
years.
Methods of Depreciation
-
7/28/2019 Depriciation Final Presentation
17/23
3- Composite Depreciation Methodo The composite method is applied to a collection of
assets that are not similar, and have different service
lives.
o For example, computers and printers are not similar,
but both are part of the office equipment.
o Depreciation on all assets is determined by using thestraight-line-depreciation method.
Methods of Depreciation
-
7/28/2019 Depriciation Final Presentation
18/23
-
7/28/2019 Depriciation Final Presentation
19/23
-
7/28/2019 Depriciation Final Presentation
20/23
-
7/28/2019 Depriciation Final Presentation
21/23
Depreciation should be charged as follows:
Year 1 (CostResidual value) x n / Sum of digits
Year 2 (CostResidual value) x (n-1) / Sum of digits
Year 3 (CostResidual value) x (n-2) / Sum of digits
Year 4 (CostResidual value) x (n-3) / Sum of digits
Year n (CostResidual value) x 1 / Sum of digits
With diminishing years
of life to run
Methods of Depreciation
-
7/28/2019 Depriciation Final Presentation
22/23
With diminishing years
of life to run
Methods of Depreciation
ExampleCost of asset $9,000
No scrap value
Estimated useful life 5 years
Sum of digits = 5(5+1) / 2 = 15
Depreciation charge:
Year 1 $9,000 x 5/15 = $3,000 Year 2 $9,000 x 4/15 = $2,400
Year 3 $9,000 x 3/15 = $1,800 Year 4 $9,000 x 2/15 = $1,200
Year 5 $9,000 x 1/15 = $ 600
-
7/28/2019 Depriciation Final Presentation
23/23
top related