Depreciation and Semi-annual rate: Difference between pages

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imported>Doug Williamson
(Note other acceptable bases of allocating total cost over time.)
 
imported>Doug Williamson
(Link with Semi-annual basis page.)
 
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1.
The semi-annual rate is the simple annual interest quotation for compounding twice a year.  


Depreciation is an accounting charge reflecting the estimated periodic cost to a business of a physical capital asset over its estimated useful economic life.  
For example if the semi-annual rate is quoted as 10%, then the periodic interest accruing is 5% (= 10% x 6/12) per six month period.


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.
A semi-annual rate is an example of a nominal annual rate.


Methods of spreading the total accounting cost include Straight line, Reducing balance and Sum of the digits.
Not to be confused with the ''annual effective'' rate, which in this case would be = 1.05<sup>2</sup> - 1 = 10.25%.


(Financial reporting standards generally permit the use of any systematic basis of allocating the total cost over the useful life of the asset.)
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.


== See also ==
* [[Annual effective rate]]
* [[Nominal annual rate]]
* [[Semi-annual basis]]
* [[Periodic rate of interest]]


The depreciation charge is an in-period accounting expense, charged against profits for the period.
[[Category:Debt_Capital_Markets]]
 
[[Category:Cash_Management]]
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.
[[Category:Interest_Rate_Risk]]
 
 
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.
 
 
== See also ==
* [[Accumulated depreciation]]
* [[Amortisation]]
* [[Appreciation]]
* [[Assets]]
* [[Capital allowances]]
* [[Cost]]
* [[EBITDA]]
* [[International Fisher Effect]]
* [[Net book value]]
* [[PPE]]
* [[Provision]]
* [[Reducing balance]]
* [[Straight line]]
* [[Sum of the digits]]
* [[Tax depreciation]]
* [[Writing down allowance]]
* [[CertICM]]

Revision as of 14:52, 19 October 2013

The semi-annual rate is the simple annual interest quotation for compounding twice a year.

For example if the semi-annual rate is quoted as 10%, then the periodic interest accruing is 5% (= 10% x 6/12) per six month period.

A semi-annual rate is an example of a nominal annual rate.

Not to be confused with the annual effective rate, which in this case would be = 1.052 - 1 = 10.25%.


See also

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