The document discusses the financial impact of purchasing a forklift over a five-year period, focusing on how depreciation affects financial statements such as profit and loss, balance sheet, and cash flow. It highlights the methods of calculating depreciation, including straight-line and diminishing balance, using a tractor purchase by Farmer Fred as a practical example. The text aims to illustrate the allocation of costs and the reporting of depreciation in financial documentation, also encouraging further engagement and reflection on the topic.

1. Tell me the story!
A forklift purchase for a warehouse!
At time of purchase …..5 years later

2. Is there an impact on the
Financial Statements?
Profit and Loss
Balance Sheet
Statement
Cash Flow
Statement
If so how, which, what, where, why?

3. Depreciation
• A non-current asset undergoes wear and tear, so
that its expected selling price declines over time.
• Depreciation is the allocation of the cost of a non
current asset over its effective working life
• The difference between a non-current asset’s
original purchase price and its final selling price is
allocated as an expense each year called
depreciation

4. Cost of non-current asset
• The original cost (historical cost)
• Any other costs required to get the asset into
a condition to be able to earn revenue
$$$$

5. Farmer Fred!
Fred owns a sheep and cattle farm. A variety of
machinery helps him to successfully run this
farm.

6. Purchase of a Tractor
• Farmer Fred wants to add a front end loader
to his new tractor purchase on 1 July 2012.
Cost $70000
$10000 for the
front end loader
Cost of
installation
$1000
Historical cost = $70000+$10000+$1000=$81000

7. The value of the tractor
Purchase Price = $81000
Estimated scrap value = $21000
Fred expects to keep it for 5 years (Useful Life)

8. Calculating Depreciation
Two methods studied
Straight Line Diminishing Balance
Unit 3 Unit 4
Same amount Amount of
expensed each depreciation
reporting reduces each
period reporting period

9. How do you know
which depreciation
method to choose?

10. Reducing Balance Method
• Reducing balance method is used when….
a non-current asset is more efficient in its earlier
years of its life. The asset does not breakdown
as much, and repairs are kept to a minimum. As
it gets older it is likely to be out of operation for
periods of time while it is being repaired.
Income needs to be matched with expenses
over that time.

11. Straight Line Depreciation
The formula:-
Including costs incurred to
get non current asset ready
to earn revenue
Cost – Scrap
Useful Life

12. Reducing Balance Depreciation
Calculating the amount of depreciation
Including costs incurred to
get non current asset ready
to earn revenue
Cost – Scrap
X 1.5
Useful Life

13. Tractor
$81000 - $21000 (scrap value)
5 (years)
=$12000 depreciation x 1.5
= 22% per annum

14. Where does depreciation appear?
General journal
The General Ledger
Depreciation Tractor Accumulated Depreciation
(expense) Tractor
Balance Sheet
Profit and Loss
Non current Assets
Tractor
Less accumulated depreciation

15. How does it look?
Tell me the story of what you can see in
the figures above?

16. • Where will each of the above
calculations appear in the financial
statements? Why do they appear
there?
• How would it be different if straight
line depreciation was used?

17. Which depreciation method would you
use for each of the following?
1. Draw up a table with 3 columns/9rows
2. List the non-current asset
3. Choose the method
4. Explain and justify your choice

23. Tool Chest

24. 1. Woolshed and 2. The sheepyards

25. Furniture and
Fittings

26. Shop shelving

27. Reducing Balance
Depreciation in a
Word Cloud
• Goto http://www.wordle.net and create your
own word cloud – “reducing balance
depreciation in a wordle”

28. or…
Find all the term(s) in the above word cloud and
explain their relevance to depreciation.

29. • Reflections
• What did you find easy?
• What did you find most challenging?
• What do you need to do?

30. Make it 24/7
• Upload to
• Podcast this and add to
• Get students to add comments to a teacher blog
post