Financial Accounting

1. FINANCIAL ACCOUNTING
NON-CURRENT ASSETS & DEPRECIATION

2. What is Non-Current Assets
The Assets which a Business Uses More than one
Accounting Period (more than one year) are classified
as non-current assets.
Example of Non-Current Assets:-
 Building
 Financial Assets / Long Term Investments
 Machinery
 Vehicles
 Land
 Furniture & fittings
 Plant
 Intangible Assets

3. What is Depreciation
Depreciation is that part of the original cost of a non-current asset that is
assumed during its period of use by the business.
It needs to be charged to the profit and loss account every year.
The amount charged in a year for depreciation is based upon an
estimate of how much of the overall economic usefulness of non-
current asset.
Example:
If a PC cost 1200 and its useful life is 3 years , it might be
estimated overall usefulness has been consumed.
Depreciation charged at an amount equal to one-third of the
cost of the PC,i.e.400 . The value of the PC in the statement
1200 to 800.

4. Causes of depreciation
• Wear and tear : Results from friction , resistance and chemical
reaction.
• Depletion : Decrease in the value of assets such as oils wells,
forest.
• Laps of Time : The value of the asset goes down whether utilized
or not.

5. Methods of calculating depreciation charges
• Straight Line method
• Reducing Balance method
• Units of Production
• Sum-of-years-digits

6. Straight line Method
• In this method , Cost of Actual value is estimated . The cost is
then divided by the number of year.
• This gives the depreciation charge for each year.
For Example:
If a van was bought for 22,000 and its useful life is 4 years and sale
it for 2,000 depreciation to be charged each year would be

7. In financial accounting, scrap value is associated with
the depreciation of assets used in a business. In this
situation, scrap value is defined as the estimated
value of the asset at the end of its useful life. Scrap
value is also referred to as an asset salvage value
Scrap Value

8. Reducing balance Method
• In this method, a fixed percentage for depreciation is deducted
from the cost in the first year .
• In the second and later years the same percentage is taken of
the reduced balance(i.e. cost less depreciation already
charged.
• This method is also known as the diminishing balance
method.