1. By Alyssa (176004) Khadija (176010) Rafiyah (176016)
Depreciation By
Alyssa (176004)
Khadija (176010)
Rafiyah (176016)

2. What is Depreciation?
- An estimate of the loss in value of a non-current asset over its expected working life
- The cost of the non-current asset is spread over the time which benefit from its usage
- Non-current asset examples: furniture, equipment, motor vehicles, etc.
- Land is the only exception which cannot be depreciated as the value of land appreciates with time.
- Note: A portion of the value of the asset is considered as income as it helps the business make money.

3. Causes of Depreciation
- Physical deterioration
- Economic reasons (becoming obsolete compared to newer technology)
- Passage of time (occurs when asset has a fixed amount of years to be used; example: lease)

4. Methods of Depreciation: Straight-Line
- Formula: Cost of Asset/Number of Expected Years of Use
(Cost of Asset – Residual Value)/Number of Expected Years of Use
- Also known as “Fixed Installment” method
- The same amount of depreciation or the same percentage rate is applied each year.
- Using this method will cause the asset’s value to eventually fall to zero.
- Used when each year is expected to benefit equally from the use of the asset

5. Methods of Depreciation: Reducing Balance
- Uses the same formula as Straight-Line method
- Same percentage is applied, but calculated on a different value each year
- Also known as “Diminishing Balance” method
- The value of the asset will never fall to zero because the value of depreciation will decrease proportionally to the net book value (the value after depreciation is applied).
- Residual value will always be taken into consideration when finding the depreciation every year.
- Used where the greater benefits from the use of the asset will be gained in the early years of usage

6. Methods of Depreciation: Revaluation
- Used where it is difficult to keep detailed records of certain types of non-current assets
- Examples: small items of equipment, packing cases, loose tools
- The assets are valued at the end of each financial year.
- The difference between the initial value and final value is the depreciation.

7. Recording Depreciation using the Revaluation Method
- The cost of the asset and the depreciation are recorded on the same account.
- When you are making an entry:
- During the year – when the asset is purchased: Dr. Asset, Cr. Cash/Supplier at cost
- At the end of the year – credit the asset account with the value of the asset at that date and carry down to debit; the difference on the account is transferred to the income statement as depreciation is an expense

8. Recording Depreciation in the Income Statement
- Credited to the Provisions for Depreciation Account in the nominal ledger
- Debited to the Income Statement
- In the case of manufacturing businesses:
- Debited to the Manufacturing Account

9. Recording Depreciation in the Balance Sheet
- Net book value is written
Total cost of asset – Total depreciation written off
Also known as “depreciation to date” or “accumulated depreciation”
- Included as part of the provisions for depreciation

10. Disposal of Non-Current Assets
- When a non-current asset is sold, it is considered as a capital receipt.
Recorded under the Disposal of Non-Current Assets Account
Cost of the asset and the depreciation are removed from the Assets Account and Provisions for Depreciation Account, then transferred to the Disposal Account
The proceeds from the disposal also go into the Disposal Account.
The difference on the Disposal Account may either be a loss or a profit on disposal.
When you are making an entry:
On the date of sale – Dr. Disposal of Non-Current Asset with the original cost, Cr. Assets Account; Dr. Provisions for Depreciation Account, Cr. Disposal of Non- Current Assets Account with the total depreciation; Dr. Cash/Debtor’s Account with proceeds, Cr. Disposal of Non-Current Asset Account
At the year end – Difference on Disposal Account goes to Income Statement

12. Date
Details
Value in RM
Notes
1 July 20X7
TAN 2003
80,000
Accessory
4,800
Company Logo
1,200
1 January 20X8
Chengal Settee
4,500
- Estimated use of 10 years
- Residual value of RM800
2 January 20X8
BKW 6906
64,000
1 July 20X8
Teak Sofa
7,500
- Estimated use of 8 years
- Residual value of RM1000
31 December 20X8
55,000
- Proceeds from disposal
1 April 20X9
MCA 2020
108,000
Custom Duty
12,000

13. Date
Details RM
1 July 20X7
Motor Vehicle
Bank/Cash
80,000
Add-On Accessory
4,800
Company Logo
1,200
1 January 20X8
Furniture
4,500
2 January 20X8
64,000
1 July 20X8
7,500
31 December 20X8
Cash/Debtor’s Account
Disposal
55,000
1 April 20X9
108,000
Custom Duty
12,000

14. Non-Current Assets Account
Dr.
Non-Current Assets Account
Cr.
Date
Details RM
20X7
July 1
TAN 2003
80,000
Dec 31
Balance c/d
86,000
Accessory
4,800
Logo
1,200
20X8
Jan 1
Balance b/d
Disposal
55,000
Chengal Settee
4,500
107,000
Jan 2
BKW 6906
64,000
Teak Sofa
7,500
162,000
20X9
227,000
April 1
MCA 2020
108,000
Custom Duty
12,000

15. Provisions for Depreciation Account
Dr.
Provisions for Depreciation Account
Cr.
Date
Details RM
20X7
Dec 31
Balance c/d
8,600
Income Statement
(86,000 x 10%)
20X8
16,182.50
Jan 1
Balance b/d
(64,000 x 10%)
6,400
[(4, )/10]
370
[(7,500-1,000)/8]
812.5
20X9
35,125
[(64,000-6,400) x 10%]
5,760

16. Date
Details RM
20X9
Dec 31
Income Statement
370
812.50
(120,000 x 10%)
12,000
35,125

17. Statement of Comprehensive Income ExtractRM
Other Comprehensive Income
Unrealized loss after disposal
22,400
Comprehensive Income/Loss
(22,400)

18. Statement of Financial Position as at 31 December 20X9RM
Fixed Assets
Total Fixed Assets
(4,800+1,200+64,000+4,500+7, ,000+12,000)
202,000
Less Accumulated Depreciation
[8,600+6,400+2(370)+2(812.50)+5,760+12,000)
35,125
166,875