Accounting – 4.2 Accounting for depreciation and disposal of non-current assets | e-Consult
4.2 Accounting for depreciation and disposal of non-current assets (1 questions)
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Straight-Line Depreciation: This method allocates an equal amount of depreciation expense to each year of the asset's useful life. It's a simple and straightforward method.
Reducing Balance Depreciation (also known as the declining balance method): This method applies a fixed rate of depreciation to the asset's book value (cost less accumulated depreciation) each year. The depreciation expense is higher in the early years and lower in the later years.
Comparison Table:
Year | Straight-Line Depreciation | Reducing Balance Depreciation |
1 £2,000 £1,600 |
2 £2,000 £1,280 |
3 £2,000 £992 |
Explanation of the Table:
- Straight-Line: £10,000 (Cost) - £1,000 (Residual Value) = £9,000 (Depreciable Amount). £9,000 / 5 years = £1,800 per year.
- Reducing Balance: Year 1: (£10,000 - £1,000) * 80% = £1,600. Year 2: (£9,000 - £1,600) * 80% = £1,280. Year 3: (£7,400 - £1,280) * 80% = £992.