Chapter 6: p 105-113

Adjustments
Balance
Result of transaction
On specific time

Vehicle

Capital
Equipment

Loan
Bank
Transaction

Action between
business and
outside
Vehicle

Capital
Equipment

Loan
Bank
Adjustment

Within business
All transactions that affects the
financial period should be recorded
during the financial period.
These adjustments only be within
the entity.
Accounting cycle

Transaction Source
Document

Journal

General
Ledger

Adjustments Trial Balance

 B ad d
n Cred ebts/
ti o it los
a ses
e ci
pr
De
id
Prepa es
ns
expe

Adjustments

ued Acc
cr e exp rued
Ac com e ns
in es
Income received
in advance
 ADJUSTMENTS
• Prepaid expenses p.107-108
• Accrued expenses p.108-109
• Income received in advance p.109-110
• Income receivable p.110-111
 DEPRECIATION p.111

Depreciation is the systematic allocation of the

depreciable amount of an asset over its useful life.
Depreciable amount is the cost of an asset or other
amount
COST
substituted for cost, less its residual value.RESIDUAL
VALUE

SYSEMNATIC ALLOCATION OF COST – RESIDUAL VALUE

BEGINNING USEFUL LIFE OF ASSET END OF USEFUL
OF USEFUL LIFE
LIFE
Terms to know
• Depreciation-see previous slide

• Depreciable amount – see previous slide

• Carrying amount = reduced amount of asset

 • Depreciation: methods
Straight line method Diminishing balance method

Fixed amount method

Reducing balance method
% of cost method
IMPORTANT:
10%=10 YEARS
20% = 5 YEARS
P112-example6.6
25% = 4 YEARS
Cost must be R280 000,
Residual value R40 000
P111-example 6.5
Depreciation
Straight-line method (p111)

Annual depreciation = Cost-residual value

Estimated useful life
Or

% of cost

Example
Cost 1/1/2010: R20 500
Useful life: 4 years
Trade-in value (residual value): R500
Solution

20 500-500/4 = 5 000 p.j

Also see example 6.5 p.111

 Vehicles
Balance 20 500

Accumulated depreciation-Vehicles
Depreciation 5 000

Depreciation

Acc. depreciation-Vehicles 5 000

Diminishing balance method (p.112)

% of Carrying amount

Example:

Cost 1/1/2010: R20 500

Useful life: 4 years
Residual value: R500

Depreciation or 50% according to the diminishing balance

method.
Solution

Cost-residual value: 20 000

Year 1: (50% X 20 000) (10 000)
Carrying amount end of year 1 10 000
Year 2: (50% X 10 000) (5 000)
Carrying amount end of year 2 5 000

Also see example 6.6 p112

Cost must be R280 000, Residual value R40 000

?Assets bought during the year

 Vehicles
Balance 20 500

Accumulated depreciation-vehicles
Depreciation 10 000

Depreciation

Acc. Depr. Vehicles 10 000