depreciation

1. DEPRECIATION

2. DEPRECIATION
• Depreciation is an accounting procedure for
allocating the cost of capital assets, such as
buildings, machinery tools and vehicles over
their useful.
• Depreciation amount
• Recapture the amount of money to provide
for replacement of the asset
• To recover the original investment

3. TERMS RELATED TO DEPRECIATION
• Original Cost
the amount of money paid for an asset plus
any taxes, delivery charges, installation
charges and other cost incurred.
• Salvage Value
Scrap value or trade in value. The value of an
asset at the end of its useful life.
• Useful Life
the life expectancy of the asset or the number
of years the asset expected to last.

4. Cont…
• Total Depreciation
The wearing value of an asset. It is the
difference between cost and scrap value
• Annual Depreciation
The amount of depreciation in a year
• Accumulated Depreciation
The total depreciation to date
• Book Value
The value of the asset as show in the
accounting book

5. METHOD
OF
DEPRECIATION
STRAIGHT
LINE
METHOD
DECLINING
BALANCE
METHOD
SUM OF
YEARS DIGITS
METHOD

6. STRAIGHT LINE METHOD
• The simplest method
• The total amount of depreciation is spread
evenly to each accounting period through the
useful life of the asset.
FORMULA
Annual depreciation = Cost – Salvage Value
Useful Life
= Total Depreciation
Useful Life

7. Cont…
Annual Depreciation
Total Depreciation
1
Useful Life
X 100%
Annual Rate of
Depreciation =
OR
=
X 100%
Book Value = Cost – Accumulated Depreciation

8. Exercise 1
Mawar Company bought a lorry for RM 38 000.
The lorry is expected to last 5 years and its
salvage value at the end of 5 years is RM 8000.
using the straight line method.
a) Calculate the annual depreciation
b) Calculate the annual rate of depreciation
c) Calculate the book value of the lorry at the
end of third year
d) Prepare a depreciation schedule

9. Exercise 2
The book value of an asset after the third year
and fifth year using the straight line method are
RM 7000 and RM 5000 respectively. What is the
annual depreciation of the asset?

10. DECLINING BALANCE METHOD
Accelerated method in which higher
depreciation charges are deducted in the early
life of the asset.
If the original cost of the asset is C and the
depreciation is r%, then the depreciated values
(book value) of the asset are calculated as
follows:

11. Cont..