Depreciation

[shaheen]

Hi!
I've got a question.
Can you tell me the difference between provision for depreciation account, depreciation expense account and accumulated depreciated account?
I'm getting confused!
Especially about the provision for depreciation account and depreciation expense account.
Thanks.

[ACCA_Tutor]

Dear Shaheen,

Kindly study the example below and you will be able to understand the difference between accumulated depreciation and depreciation expense.

Example:
Cost of Fixed Asset = $10,000
Depreciation Charge = 10% p.a. on Cost

Answer:
Depreciation Charge/Depreciation Expense for Year 1 = 10% x 10,000 = $1,000

This is the amount that will be debited to the Profit & Loss A/c.

The other entry (credit) will be in the Provision for Depreciation A/c/ Accumulated Depreciation A/c.

Hence, in Year 1, Depreciation Charge = Accumulated Depreciation (Total Depreciation).

In Year 2, the same amount of Depreciation ($1,000) will be debited to P&L A/c (since the straight line method is being used) and another $1,000 credited to Accumulated Depreciation A/c. Since the balance is carried forward on the Accumulated Depreciation A/c, the new balance will now be $2,000 (1,000 x 2).

In Year 3, $1,000 will again be debited to P&L A/c and $1,000 credited to Accumulated Depreciation A/c and the balance (total) will now be $3,000.

Summary:

Year                        Depreciation Expense ($)                       Accumulated Depreciation ($)
1                            1,000                                                   1,000                         
2                            1,000                                                   2,000
3                            1,000                                                   3,000

The depreciation expense will be debited to P&L A/c each year.
The accumulated depreciation will be shown in the Balance Sheet.

Balance Sheet Extracts
                                                       COST        ACCUMULATED DEPRECIATION          NET BOOK VALUE
                                                          $                               $                                           $
Year 1                                             10,000                       (1,000)                                   9,000
Year 2                                             10,000                       (2,000)                                   8,000
Year 3                                             10,000                       (3,000)                                   7,000

If you have any other question, we shall be pleased to answer as best as we can.

Thank you for using our website.


Regards,
ACCA Tutor                   

[chandresh]

I am able to solve the questions of bank reconciliation, but i do not know what is the practical use of bank reconciliation. i just need to know a bit scenario like what actually happens in the practical life regarding bank reconciliation.

[shaheen]

Dear Shaheen,

Kindly study the example below and you will be able to understand the difference between accumulated depreciation and depreciation expense.

Example:
Cost of Fixed Asset = $10,000
Depreciation Charge = 10% p.a. on Cost

Answer:
Depreciation Charge/Depreciation Expense for Year 1 = 10% x 10,000 = $1,000

This is the amount that will be debited to the Profit & Loss A/c.

The other entry (credit) will be in the Provision for Depreciation A/c/ Accumulated Depreciation A/c.

Hence, in Year 1, Depreciation Charge = Accumulated Depreciation (Total Depreciation).

In Year 2, the same amount of Depreciation ($1,000) will be debited to P&L A/c (since the straight line method is being used) and another $1,000 credited to Accumulated Depreciation A/c. Since the balance is carried forward on the Accumulated Depreciation A/c, the new balance will now be $2,000 (1,000 x 2).

In Year 3, $1,000 will again be debited to P&L A/c and $1,000 credited to Accumulated Depreciation A/c and the balance (total) will now be $3,000.

Summary:

Year                        Depreciation Expense ($)                       Accumulated Depreciation ($)
1                            1,000                                                   1,000                         
2                            1,000                                                   2,000
3                            1,000                                                   3,000

The depreciation expense will be debited to P&L A/c each year.
The accumulated depreciation will be shown in the Balance Sheet.

Balance Sheet Extracts
                                                       COST        ACCUMULATED DEPRECIATION          NET BOOK VALUE
                                                          $                               $                                           $
Year 1                                             10,000                       (1,000)                                   9,000
Year 2                                             10,000                       (2,000)                                   8,000
Year 3                                             10,000                       (3,000)                                   7,000

If you have any other question, we shall be pleased to answer as best as we can.

Thank you for using our website.


Regards,
ACCA Tutor                   

Okay thanks!!
I appreciate it!