Depreciation: Difference between revisions
imported>Doug Williamson (Add link.) |
imported>Doug Williamson (Expand to distinguish depreciation charge from provision for depreciation.) |
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Depreciation is an accounting charge reflecting the estimated periodic cost to a business of a physical capital asset over its estimated useful economic life. | |||
Accounting depreciation seeks to ensure that the total accounting cost of a capitalised asset is appropriately spread and matched to the economic benefits of using the asset. | |||
Methods of spreading the total accounting cost include Straight line, Reducing balance and Sum of the digits. | |||
It's important to be clear about the distinction between the: | |||
*Depreciation charge for the period; and | |||
*Cumulative depreciation provision at the end of the period. | |||
The depreciation charge is an in-period accounting expense, charged against profits for the period. | |||
The cumulative provision for depreciation is a liability in the balance sheet. It's offset against the cost of the assets, to calculate their accounting net book value. | |||
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* [[Net book value]] | * [[Net book value]] | ||
* [[PPE]] | * [[PPE]] | ||
* [[Provision]] | |||
* [[Reducing balance]] | * [[Reducing balance]] | ||
* [[Straight line]] | * [[Straight line]] | ||
Revision as of 15:56, 21 May 2017
1.
Depreciation is an accounting charge reflecting the estimated periodic cost to a business of a physical capital asset over its estimated useful economic life.
Accounting depreciation seeks to ensure that the total accounting cost of a capitalised asset is appropriately spread and matched to the economic benefits of using the asset.
Methods of spreading the total accounting cost include Straight line, Reducing balance and Sum of the digits.
It's important to be clear about the distinction between the:
- Depreciation charge for the period; and
- Cumulative depreciation provision at the end of the period.
The depreciation charge is an in-period accounting expense, charged against profits for the period.
The cumulative provision for depreciation is a liability in the balance sheet. It's offset against the cost of the assets, to calculate their accounting net book value.
2.
More generally, any decrease in the value of an asset resulting from the passing of time.
3.
A decrease in the value of a currency.
