![]() ![]() Find the initial cost of the asset this is usually found on the purchase invoice.To calculate the straight-line method, you use the following process: The amount is posted to the Profit and Loss account as an expense. Rather than entering £5,000 as an expense on the Profit and Loss account in year one, the business posts the asset to the Balance sheet and reduces it by a fixed amount each month or year. The reducing balance method, reduces it much quicker over the first years, and then it slows down.įurniture Straight Line Depreciation ExampleĪ business spends £5,000 on furniture, which is expected to have a useful life of 5 years. As you can see, the straight line basis reduces the value of the asses evenly. The chart below shows the difference between straight line depreciation and reducing balance depreciation. The same amount is depreciated each year that the asset has a useful life. Straight line depreciation is the most common method used in calculating the depreciation of a fixed asset. ![]()
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