Depreciation: This matches the cost of the Non-current asset to the revenues it generates.

Depreciation spreads the cost of the NCA over its useful life

REQUIRED: Calculate the depreciation charge for the first 4 years

EXAMPLE 4

Req: Get Depreciation charge and NBV for Year 1 to 5.

Cost-Residual Value 16,000-1,000
Estimated useful life 5
EXAMPLE 5

A car was purchased on 1st Jan 20X1. The cos of the asset was $1,000,000. Depreciation is charged at 20% Reducing
Required: (a) Caluclate the depreciation Charge for the years Ended 31st Dec 20X1 upto 20X5
(b) Record these transaction in the relevant ledgerr acounts

Recording Depreciation Expenses/ Charge in the ledger accounts Dr. Depreciation Expenses
Dr. Depreciation Expenses (P or L) X 20X1 Acc. Dep
Cr. Accumulated depreciation(SFP) X
20X2 Acc. Dep

20X3 Acc. Dep

20X4 Acc. Dep

20X5 Acc. Dep

 Depreciation methods;
1. Straight line Basis=
Depreciation p.a =
OR
Depreciation p.a= Depreciation % X Cost

2. Reducing Balance Basis( Written down Basis)

Depreciation charge= Depreciation %
Net Book Value ( NBV) / Carrying Value(CV)= Cost - Accumulated dep
Accumulated depreciation= Total depreciation charged to date

EXAMPLE 1
Straightline depreciation
Depreciation p.a = Cost- Residual value
Estimated useful life

Year Cost Depreciation Charge

1 24,000 4,000
2 24,000 4,000
3 24,000 4,000
4 24,000 4,000
5 24,000 4,000

EXAMPLE 2
2. Reducing Balance Basis( Written down Basis)
Depreciation charge= Depreciation %
NBV= Cost-Accumulated depreciation
Year Cost NBV Depreciation charge
( 25% X NBV)
1 24,000 24,000 6,000.00
2 24,000 18,000 4,500.00
3 24,000 13,500 3,375.00
4 24,000 10,125 2,531.25

Example 5
( 20% X NBV)
Year Cost NBV Depreciation charge
Year 1 to 5. 20X1 1,000,000 1,000,000 200,000.00
16,000-1,000 3,000.00 20X2 1,000,000 800,000 160,000.00
20X3 1,000,000 640,000 128,000.00
 20X4 1,000,000 512,000 102,400.00
20X5 1,000,000 409,600 81,920.00
n is charged at 20% Reducing balance basis
1 upto 20X5

Depreciation Expenses Cr. Dr.

200,000 P or L 200,000 Bal c/d
200,000 200,000
160,000 P or L 160,000
160,000 160,000 Bal c/d
128,000 P or L 128,000
128,000 128,000
102,400 P or L 102,400 Bal c/d
102,400 102,400
81920 P or L 81920
81,920 81,920
Bal c/d

Bal c/d
 Cost- Residual value/Scrap value OR
Estimated useful life Depreciation % X Cost

n % X Cost

n charge= Depreciation % X Net Book Value (NBV)

)= Cost - Accumulated depreciation
tion charged to date

24,000-4,000 4000
5
(Cost-Acc. Dep)
Accumulated depreciation Net Book Value
4,000 20,000
8,000 16,000
12,000 12,000
16,000 8,000
20,000 4,000

n charge= Depreciation % X Net Book Value (NBV)

-Accumulated depreciation
Accumulated Depreciation

6,000.00
10,500.00
13,875.00
16,406.25

NBV= Cost- Acc. Dep

Depreciation= 25% XNBV
Acc. Dep
200,000.00
360,000.00
488,000.00
 590,400.00
672,320.00

Accumulated Depreciation (SFP) Cr.

200,000 20X1 Depreciation 200,000
200,000 200,000
20X2
360,000 Bal b/d 200,000
Depreciation 160,000
360,000 360,000
488,000 20X3
Bal b/d 360,000
Depreciation 128,000
488,000 488,000
590,400 20x4
Bal b/d 488,000
Depreciation 102400
590,400 590,400
672,320 20X5
Bal b/d 590,400
Depreciation 81920
672,320 672,320
Bal b/d 672,320
A car was purchased on 1st Jan 20X1. The cost of the asset was $1,000,000. Depreciation is charged at 20% Reducin
Required: (a) Caluclate the depreciation Charge for the years Ended 31st Dec 20X1 upto 20X5
(b) Record these transaction in the relevant ledgerr acounts
20% XNBV
Year Cost NBV Depreciation chargeAccumulated Depreciation
20X1 1,000,000 1,000,000 200,000.00 200,000.00
20X2 1,000,000 800,000.00 160,000.00 360,000.00
20X3 1,000,000 640,000.00 128,000.00 488,000.00
20X4 1,000,000 512,000.00 102,400.00 590,400.00
20X5 1,000,000 409,600.00 81,920.00 672,320.00

EXAMPLE 1b
A machine was purchased on 1st Jan 2018 for $250,000.The depreciation is on stratight line at 10%.
Required: Calculate the depreciation charge p.a The accumulated depreciation and the NBV for the first 5

Dep p.a= Depreciation % X Cost 10% X 250,000=

Year Cost Depreciation Charge Accumulated depreciatio

1 250,000 25000 25000
2 250,000 25000 50000
3 250,000 25000 75000
4 250,000 25000 100000
5 250,000 25000 125000

EXAMPLE 5b

A machine wa purchased on 1st Jan 2015 for $150,000

Depreciation is charged on staright line basis. The residual value after 5 years is expected to be $50,000.
Required:
Calculate the depreciation charge p.a for the 5 years.
Show the Depreciation charge account and the acumulated depreciation account for the 5 years.
Dr
2015
Acc.dep

2016
Acc.dep

2017
Acc.dep

2018
Acc.dep

2019
Acc.dep
tion is charged at 20% Reducing balance basis
X1 upto 20X5

Depreciation= NBV X Depreciation%

epreciation NBV= Cost- Acc. Depreciation

s on stratight line at 10%.

ion and the NBV for the first 5 years.

0% X 250,000= 25000

Net Book Value

225,000
200,000
175,000
150,000
125,000

Solution

Depreciation pa.= Cost- Residual Value

cted to be $50,000. Estimated useful life

150,000-50,000 20,000.00
5 years

Year Cost Dep charge Acc. Dep NBV

2015 150,000 20000 20000
2016 150,000 20000 40000
2017 150,000 20000 60000
2018 150,000 20000 80000
 2019 150,000 20000 100000

Depreciatio Expense Cr Dr. Acc. Depreciation

20,000 P or L 20,000 Bal c/d 20,000

20,000 20,000 20,000

20,000 P or L 20,000
20,000 20,000 Bal c/d 40000
40000
20,000 P or L 20,000
20,000 20,000
Bal c/d 60,000
20,000 P or L 20,000 60,000
20,000 20,000
Bal c/d 80,000
20,000 P or L 20,000 80,000
20,000 20,000
Bal c/d 100,000

100,000
Acc. Depreciation Cr.
2015
Dep charg 20,000
20,000
2016
Bal b/d 20,000
Dep charg 20,000
40,000
2017
Bal b/d 40,000
dep charg 20,000
60,000
Bal b/d 60,000
Dep charg 20,000
80,000
2019
Bal b/d 80,000
Dep charg 20,000
100,000
Bal b/d 100,000
PURCHASING A NON CURRENT AASSET IN THE MIDDLE OF THE YEAR

EXAMPLE ONE

EXAMPLE TWO
Using the information in example One above, Calculate the depreciation charges for 20X1 TO 20X5
assuming that depreciation is charged on Pro-rata basis
 1st Jan 12

EXAMPLE ONE
Full years depreciation in the year of purcha
Depreciation method; Straight line @ 20%

Depreciation p.a = 20% X 10,000

YEAR No. of Months Depreciation Acc.depreciation

20X1 3 2000 2000
20X2 12 2000 4000
20X3 12 2000 6000
20X4 12 2000 8000

20X5 9 0 8000

EXAMPLE TWO
N/B Prorata basis the depreciation is charged on a monthly basis/ month by month basis

YEAR No. of Months Depreciation Acc.depreciation

20X1 3 500 500
20X2 12 2000 2500
20X3 12 2000 4500
20X4 12 2000 6500
20X5 9 1500 8000

es for 20X1 TO 20X5 incusive,

depreciation in the year of purchase

2000

by month basis