assets. The formula for calculating depreciation under this method is:
Useful life in years
The welding robot (see above) would be depreciated over 10 years at:
(£240,000 - £4,000)
-'----'-----'---'- = £23,600 p.a.
10
The diminishing balance method
The diminishing balance method assumes higher depreciation in earlier years than in later years and is used where it is clear that greater benefits are provided by assets when new than when they become older - perhaps as a result of general wear causing them to become more prone to breakdown or less capable of producing a high-quality product. The method (sometimes called the 'reducing balance' method) works by applying a given (or calculated) percentage to the net book value (i.e. cost less accumulated depreciation up to the date of the calculation).
Depreciation is an expense - a loss - to the business, so the depreciation for the financial period will be included within the income statement. The value of the non-current asset, as adjusted for depreciation, will be included on the balance sheet. Non-current assets are not shown individually, but grouped into classes of assets, for example 'land and buildings', 'machinery', 'motor vehicles', 'fixtures and fittings'. Bookkeeping requires separate depreciation accounts to be opened for each class of asset.
Charter a yacht out of Gosport into the Solent
Elmer Tamayo is the author of myaccountinginfo.net who took-up his degree of "BS in Accountancy" major in accounting. A Web designer and blogger, His passion is Reading books, searching new tech update on the world wide web. Read More...
