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Good afternoon,
I have a question regarding to Depreciation.
Practising with either BPP or Pearson exercise, I have noticed that Depreciation is included in the Admistrative Expenses (in BPP), if not differently specified to be included in “Cost of Sales”.
Could you please make clarification ?
Does it depend on the nature of the asset depreciated ?Depreciation included in COS (fixed assets : equipment, machinery, vehicles)
Depreciation included in Administrative Expenses : ( Land & Building)Thank you in advance
Serena
Firstly, I think you must be using old books because the terminology changed several years ago! The Income Statement is now called the Statement of profit or loss, and fixed assets are now called non-current assets. The exam will use the current terminology.
Yes – it depends on the nature of the asset. If the assets are being used for production (so machinery, factory land and buildings, etc.) then the depreciation is included in cost of sales.
If the assets are being used for administration (so office land and buildings, computers etc.) then the depreciation is included in administration expenses.
If the assets are being used for selling and distribution (so delivery vehicles etc.) then the depreciation is included in selling and distribution expenses.Be careful if you are indeed using old books. Other terminology has changed as well, and (depending on how old your books are) the syllabus could be different now. For example, basic consolidations are now in the syllabus, but did not used to be in the syllabus.
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