Depreciation Example 3 – ACCA Financial Accounting (FA) lectures
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Thank you very much sir. Regarding the final journal entry to close depreciation expense, we credit the amount to SOPL. But isn’t depreciation expense supposed to carry a debit balance to reduce our profit? Your feedback will be much appreciated. Thanks again.
We credit the expense account and debit the SOPL. Debiting the SOPL is reducing the profit.
Thank you so much for your assistance Sir! For example 3, after showing the accounting entries and closing the depreciation expense account by crediting SOPL, you do not have to show the SOPL entry ?
You cannot be asked to actually write up t-accounts in the exam. When extracts from the SOPL are required, the question will ask for them.
Thank you so much sir for this lecture? but at first why we did cash debited 15000 on car account
We didn’t debit cash at all.
We debited the car account with 15,000 and (as is explained in the earlier chapters) we write cash against it simply because the other entry will be to the cash account.
If we have two different cars bought at two different times and with different salvage values and useful life. Do we still use the same depreciation accounts or do we create separate depreciation accounts? And How does that affect the financial statements?
We use the same cost and depreciation accounts. On the financial statements we only show the total cost and total depreciation on all the cars.
Would there be a seperate accumulated depreciation account for each type of asset?
On the SOFP, do you show accumulated depreciation for all your assets or per each type of asset?
i.e. if you had two cars and one machine, would you have:
Non-Current Asset – Motor Vehicles $x
Non -Current Asset – PP&E. $x
Accumulated Depreciation ($x)
or ?
Non-Current Asset – Motor Vehicles $x
Accumulated Depreciation – Motor Vehicles ($x)
Non -Current Asset – PP&E. $x
Accumulated Depreciation – PP&E ($x)
Thanks!
It is the second of your examples. Each type of asset has a cost account and an accumulated depreciation account.
Nice lecture sir,
You said we dont deduct the depreciation from the car account, because it would become a mess if there were many cars to work with.
Wont it also look like a mess with multiple cars if all their depreciations are added to the Accumulated Depreciation Account?
No. I was not saying that the account would look a mess but that it would make it hard to calculate the depreciation because each car will have been bought at different times and we would have to spend time deciding how much each car originally cost.
Unless we assigned a separate Accumulated Depreciation Account PER car or other non current assets, I do not grasp as a beginner how would we be solving this problem that you mentioned if we just assigned a single Accumulated Depreciation Account for all the cars. In that case, how would it beat the problem that we face when directly deducting from the Car Account instead? In the Car account all the calculations of different cars would be gathering together, and so the same case would be as well with the new Account that you mentioned to create. So did you mean to create Accumulated Depreciation Account per car ?
Thank you John i needed a reminder on this
A very well explained subject – thank you!
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