prepare ledger accounts and journal entries for the provision of depreciation

4.2 Accounting for Depreciation and Disposal of Non‑Current Assets

Journal Entry for Depreciation

1. Debit Depreciation Expense (increases expense).
2. Credit Accumulated Depreciation (increases contra‑asset).

Example:

$Debit\;Depreciation\;Expense\;£2,000$\
$Credit\;Accumulated\;Depreciation\;£2,000$

Ledger Accounts

Example: School Computer System

Imagine the school buys a computer system for £10,000 with a useful life of 5 years and a residual value of £1,000.

Annual depreciation:

$Depreciation = \dfrac{10,000 - 1,000}{5} = £1,800$

Journal entry each year:

$Debit\;Depreciation\;Expense\;£1,800$\
$Credit\;Accumulated\;Depreciation\;£1,800$

Disposal of an Asset

When an asset is sold or written off, we remove its cost and accumulated depreciation from the books.

1. Debit Accumulated Depreciation (remove the contra‑asset).
2. Debit Loss on Disposal if sale price < book value.
3. Credit Asset (remove the original cost).
4. Credit Cash/Bank (receive sale proceeds).

Example: Selling the computer for £2,000 after 3 years.

Book value after 3 years: £10,000 - £1,800×3 = £3,600.

Loss on disposal: £3,600 - £2,000 = £1,600.

Journal entry:

$Debit\;Accumulated\;Depreciation\;£5,400$\
$Debit\;Loss\;on\;Disposal\;£1,600$\
$Credit\;Computer\;System\;£10,000$\
$Credit\;Cash\;£2,000$