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Hi,
my doubt is that why is depreciation is taken in cost of sales and not in admin expenses because depreciation is part of of your administrative process and not a part of cost of sales?
Hi,
Depreciation could be charged in either but for the purposes of the exam it goes to cost of sales, unless otherwise told.
Think of the depreciation as being an expense in relation to the factory where the goods are produce or the machinery being used to produce the goods, hence depreciation charged to cost of sales.
In the real world, depreciation on the head office could be charged to administrative expenses as it isn’t related to the production of goods.
Hope that clears things up.
Thanks
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