Depreciation

What is depreciation?

When estimating depreciation, the business will take into consideration the estimated residual value of the asset.

Straight Line method of depreciation [blank_start]reduces[blank_end] the value of the [blank_start]asset[blank_end] by the [blank_start]same[blank_end] amount each year.

[blank_start]Reducing Balance[blank_end] method of depreciation reduces the value of the asset by a smaller amount each year.

The main causes of depreciation are;

If depreciation is not charged, profits will be overstated and the balance sheet will not show the true value of the asset.

Depreciation is an expense.

Depreciation effects the Balance Sheet

Reducing Balance method illustrated on a graph will have an upward slope.

Disposal of an asset effects the following account(s);

When calculating depreciation, you must only take into consideration the year the item was purchase or sold.

The Trade-in Allowance will effect your profits for the year.