Business – 10.1 Financial statements – Depreciation | e-Consult
10.1 Financial statements – Depreciation (1 questions)
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Effect on non‑current assets
- The gross amount of the asset (cost) is shown unchanged for the whole life of the asset.
Effect on accumulated depreciation
- Each year a fixed amount (annual depreciation) is added to the accumulated depreciation balance.
- The balance therefore increases linearly from zero to the total depreciable amount (Cost – Residual) at the end of the asset’s useful life.
Effect on net book value (NBV)
- NBV = Cost – Accumulated depreciation.
- Because accumulated depreciation rises by the same amount each year, NBV falls by an equal amount each year.
- At the end of the useful life NBV equals the residual value (or zero if no residual value is assumed).
Thus, straight‑line depreciation produces a straight‑line reduction in NBV and a straight‑line increase in accumulated depreciation, while the gross asset figure remains constant on the statement of financial position.