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  1. avatar says

    Dear Sir,
    I am having trouble understanding why is depreciation entry at 5:27 in the NCA account? I thought we have separate account for depreciation and accumulated depreciation.
    Many thanks,
    MK

    • Profile photo of John Moffat says

      The the ledger there will be accounts for cost, accumulated depreciation, and depreciation expense.
      However, on the statement of financial position we show the net book value (cost less accumulated depreciation) and in this example we do not know the cost and accumulated depreciation separately (and we do not need to know them).

      Because we know the net book value at the beginning and end of the year, we need to sort out why this changed. It changed because we bought some, it changed because we sold some, and it changed because the depreciated this year. This years depreciation charge will appear as an expense in the Income statement and will also reduce the net book value (because it increases the accumulated depreciation).

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