A company, which makes up its financial statements annually to 31 December, provides for depreciation of its machinery at the rate of 10 per cent per annum on the diminishing balance method. On 31 December 19X6, the machinery consisted of three items purchased as under: 1. On 1 January 19X4 Machine A Cost N$3 000 2. On 1 April 19X5 Machine B Cost N$2 000 3. On 1 July 19X6 Machine C Cost N$1 000
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
A company, which makes up its financial statements annually to 31 December,
provides for depreciation of its machinery at the rate of 10 per cent per annum on the
diminishing balance method. On 31 December 19X6, the machinery consisted of
three items purchased as under:
1. On 1 January 19X4 Machine A Cost N$3 000
2. On 1 April 19X5 Machine B Cost N$2 000
3. On 1 July 19X6 Machine C Cost N$1 000
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