Accounting For Depreciation And Disposal Of Non-current Assets

A delivery van that cost $20 000 is not worth $20 000 forever. Every year of bumpy roads and engine hours wears it down, and one day it will be sold for scrap. Depreciation is how accounting recognises that quiet loss of value, spreading the cost of a long-life asset fairly across the years that benefit from using it. Without it, the accounts would show assets at their shiny purchase price long after they had aged, and profit would be flattered by ignoring a real cost of doing business.

In this lesson you will learn what depreciation is and why it must be recorded, then calculate it three ways: the straight-line method, the reducing-balance method, and the revaluation method. You will build the ledger accounts that hold it together, the asset account and the provision for depreciation account, and finally master the disposal account, where you work out the profit or loss made when an asset is finally sold. Every figure here is checkable, and getting the layout right is exactly what examiners reward.