Page 106 - F3 -FA Integrated Workbook STUDENT 2018-19

Chapter 7

3.5 Accounting for depreciation

Be careful with questions in which assets are bought or sold during an accounting
period. There are two ways in which the depreciation could be accounted for, either:

 provide a full year’s depreciation charge in the year of acquisition and none in
the year of disposal, or

 a monthly or pro-rata depreciation charge, based on the number of months the
asset has been owned.

Whichever method of depreciation is used, the accounting entries required are the
same. There should be information in any question which enables you to identify
which of the two approaches above should be used.

The accounting entries required to record the annual depreciation
charge are:

Debit Depreciation expense account

Credit Accumulated depreciation account

 The depreciation expense account is a statement of profit or loss account and
therefore is not cumulative.

 The accumulated depreciation account is a statement of financial position
account and as the name suggests is cumulative i.e. reflects total depreciation
charged to date for the asset(s).

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