Suppose that at the end of an accounting period the cost of non-current assets totals $100,000 and that a judgement has been made (based on ideas covered in Chapter 3) that depreciation should be calculated based on 10% per annum straight line, resulting in an annual expense totalling $10,000. The

Question

Suppose that at the end of an accounting period the cost of non-current assets totals $100,000 and that a judgement has been made (based on ideas covered in Chapter 3) that depreciation should be calculated based on 10% per annum straight line, resulting in an annual expense totalling $10,000.

This would typically be journalised as shown below:

Date	Account name and narrative reference	Folio	Debit side	Credit side
December 31	Depreciation expense		10,000
	Accumulated depreciation			10,000
	Being depreciation of non-current assets at 10% straight line
December 31	Profit and loss		10,000
	Depreciation expense			10,000
	Closing off of the depreciation expense account to the profit and loss account

Accepted Answer

After posting, the relevant accounts would appear as shown below:

Non-current assets
Jan 1	Balance b/d	100,000

Depreciation (expense)
Dec 31	Non-current assets—Acc dep	10,000	Dec 31	Profit and loss	10,000

Non-current assets—Accumulated depreciation
			Dec-31	Non-current assets— Depreciation	10,000

Profit and loss
Dec 31	Depreciation expense	10,000

We can see that the profit and loss account will include the depreciation figure and the balance sheet will include the non-current assets at cost, less the associated accumulated depreciation.

In later years the depreciation provision figure will accumulate, up to the point at which the written value is the residual value. So, for the next year the accounts would appear as follows:

Depreciation (expense)
	Year 2
Dec 31	Non-current assets— Accumulated depreciation	10,000	Dec 31	Profit and loss	10,000

Non-current assets—Accumulated depreciation
			Year 1
			Dec 31	Non-current assets— Depreciation	10,000
Year 2			Year 2
Dec 31	Balance c/d	20,000	Dec 31	Non-current assets— Depreciation	10,000
		20,000			20,000
			Dec 31	Balance c/d	20,000

Profit and loss
Dec 31	Depreciation expense	10,000

The asset will be shown in the statement of financial position under the heading of non-current assets:

Non-current assets at cost—	100,000
Accumulated depreciation	(20,000)
	80,000

Frequently non-current assets are sold. They are seldom sold at book value, so an adjustment to reﬂect this needs to be made.

Question 4.7: Suppose that at the end of an accounting period the cost of ...

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