Depreciation and Semi-annual basis: Difference between pages

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1. ''Financial reporting - accounting practices.''
The quotation of a rate of return, or a cost, on the basis of a nominal annual rate for compounding twice per year.


Accounting depreciation spreads the cost of a long-term asset over its total life.


The depreciation accounting charge reflects:
<span style="color:#4B0082">'''Example'''</span>
* the estimated periodic cost to a business
* of a physical capital asset
* spread 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.
'''Q.'''


A rate of return - quoted as an annual effective rate - is 4.04%.


Methods of spreading the total accounting cost include Straight line, Reducing balance and Sum of the digits.
What is this same rate of return quoted on a semi-annual basis?


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


The same rate of return quoted on a semi-annual basis is:


It's important to be clear about the distinction between the:
(1.0404<sup>(1/2)</sup> -1) x 2
*Depreciation charge for the period, reflected in the income statement; and
*Cumulative depreciation provision at the end of the period, reflected in the balance sheet.


= 4.00%.


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.
It is sometimes written as ''semiannual'', without the hyphen.
 
 
2.
 
More generally, any decrease in the value of an asset resulting from the passing of time.
 
 
3. ''Foreign exchange''
 
A decrease in the value of a currency.




== See also ==
== See also ==
* [[Accumulated depreciation]]
* [[Capital market]]
* [[Amortisation]]
* [[Semi-annual rate]]
* [[Appreciation]]
*[[Nominal annual rate]]
* [[Assets]]
*[[Rate of return]]
* [[Capital allowances]]
* [[Carry trade]]
* [[CertICM]]
* [[Cost]]
* [[EBITDA]]
* [[International Fisher Effect]]
* [[Net book value]]
* [[Property, plant and equipment]]
* [[Provision]]
* [[Reducing balance]]
* [[Straight line]]
* [[Sum of the digits]]
* [[Tax depreciation]]
* [[Writing down allowance]]


[[Category:Accounting,_tax_and_regulation]]
[[Category:Long_term_funding]]
[[Category:Corporate_finance]]
[[Category:Cash_management]]

Latest revision as of 13:58, 29 October 2016

The quotation of a rate of return, or a cost, on the basis of a nominal annual rate for compounding twice per year.


Example

Q.

A rate of return - quoted as an annual effective rate - is 4.04%.

What is this same rate of return quoted on a semi-annual basis?

A.

The same rate of return quoted on a semi-annual basis is:

(1.0404(1/2) -1) x 2

= 4.00%.


It is sometimes written as semiannual, without the hyphen.


See also