Depreciation - Accounting Media

Depreciation

You will notice further from the boiler-house headings that almost all the expenditures are directly incurred. That is to say, there is a payment of cash involved. The one notable exception to this is depreciation. The reason for this is that plant and machinery. and other fixed assets, are bought and capitalized, and therefore during the lifetime of the asset the cost is gradually written off to record the loss of value due to wear and tear.

In dealing with overhead, therefore, we must, among other matters, have a good system for recording particulars about our plant and other fixed assets; decide on a method of depreciation which we think is most suitable, schedule it and transfer it by journal entry from the asset account to the appropriate expense heading. A ruling for a plant register is given in Fig. 24, and it will be seen that it combines a method for scheduling, the annual depreciation. The methods of depreciation most frequently encountered are enumerated below.