1. Slide 26.1 Wood and Sangster, Frank Wood's Business Accounting Volume 1 Power Points on the Web, 11 th Edition © Pearson Education Limited 2008 Causes of depreciation Physical deterioration Wear and tear Erosion, rust, rot and decay Economic factors Obsolescence Inadequacy Time Depletion

2. Slide 26.2 Wood and Sangster, Frank Wood's Business Accounting Volume 1 Power Points on the Web, 11 th Edition © Pearson Education Limited 2008 Straight line method If a lorry was bought for £22,000, would be kept for four years, and then be sold for £2,000, the depreciation to be charged each year would be: Cost (£22,000) – Estimated disposal value (£2,000) Number of expected years of use (4) = £5,000 depreciation each year for four years.

3. Slide 26.3 Wood and Sangster, Frank Wood's Business Accounting Volume 1 Power Points on the Web, 11 th Edition © Pearson Education Limited 2008 Reducing balance method If a machine is bought for £10,000 and depreciation is to be charged at 20%, the calculations for the first three years would be as follows: £ Cost10,000 First year depreciation (2,000) 8,000 Second year depreciation (20% of £8,000) (1,600) 6,400 Third year depreciation (20% of £6,400) (1,280) Cost not yet apportioned, end of year 3 5,120

4. Slide 26.4 Wood and Sangster, Frank Wood's Business Accounting Volume 1 Power Points on the Web, 11 th Edition © Pearson Education Limited 2008 Other methods of calculating depreciation Straight line method Reducing balance method Revaluation method Depletion unit method Machine hour method Sum of the years’ digits method Units of output method