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Hi John, I hope you’re well 🙂 could u please explain the questions below. I watched ur previous lectures but I have few problems.
1) Depreciation of production machines is charged as part of the cost of sales.
2) Depreciation is further reported to fixed costs because it does not vary with the production levels.
3) Depreciation on (Factory / Buildings / Office equipment & others) is charged to administrative expenses.
4) Administrative expenses is charged to operating expenses that are the expenses used to run the business?
5) Depreciation is reducing the value of the non-current assets which is reducing our profits for the year but we charge it as expense to SOPL.
6) We know that depreciation is not a cash flow BUT please explain then how it is an expense charging to SOPL because it is simply a reduction of the assets value over the years.
7) Are we considering the cost spent on non-current assets like lubrication, maintenance etc to be the depreciation expense for the period?
Thank you for your time…
I am not clear what questions you are asking (and almost everything you have typed is financial accounting knowledge from Paper FA – little of it is relevant for Paper PM!)
1 Yes – because it a cost of production.
2. It is a fixed cost but that does not affect how it is reported.
3. Yes – because they are administrative costs
5 and 6 It is an expense because the assets and therefore the worth of the business are being reduced.
7 No. They are not depreciation but they are expenses of running the business.
Again these are relevant for Paper FA, not for Paper PM.