FIXED ASSETS
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FIXED ASSETS
Depreciation
Net Book Value
FIXED ASSETS, are capital items purchased for the sole use of the business. Fixed assets have a COST, DEPRECIATION and a NET BOOK VALUE.
When an asset is purchased it has a COST. Each financial year after, an amount is calculated for DEPRECIATION.
This is usually worked out on a percentage, being 25% 10% etc. This percentage is worked out on how many years the asset is expected to last, or on a rate which is set by the Inland Revenue or other agreed amount. Vary greatly according to the asset in question.
Cars, for instance can be worked out at 25% DEPRECIATION per year. Therefore, each year, 25% of the COST of the vehicle would be written off into the PROFIT/LOSS account. There would then be a NET BOOK value to C/F each year.
Here is an example (there are other ways to calculate your fixed assets, such as pool, plant and other means) The following example is just one way of doing it. Policy may change and new laws implemented :-
A NEW VEHICLE IS PURCHASED AT THE BEGINNING OF YEAR 2 COSTING 4,000 N.B. IF AN ASSET IS PURCHASED PART WAY THROUGH A YEAR, IT'S A GOOD IDEA TO PRO-RATA / APPORTION THE DEPRECIATION ACCORDINGLY, e.g. 10/12 OF THE YEAR, ALTHOUGH THIS IS NOT ALWAYS THE CASE AND IS NOT ALWAYS THE BEST WAY.
Year 1
| COST B/F | DEPRN B/F | NET BOOK VALUE YEAR 1 | ADDITIONS YEAR 2 | DISPOSALS YEAR 2 | DEPRN THIS YEAR | NET BOOK VALUE YEAR 2 |
| 1,000 | 250 | 750 | 4,000 | NIL | 1,250 ** | 3,500 |
As you can see, the ** depreciation this year in this example is 1,250 - This being 25% of the B/F balance, plus 25% of the 4,000 this year = 1,250
The new balances now for the beginning of the next year will be:-
Year 2
| COST B/F | DEPRN B/F | NET BOOK VALUE YEAR 2 | ADDITIONS YEAR 3 | DISPOSALS YEAR 3 | DEPRN THIS YEAR | NET BOOK VALUE 1998 |
| 5,000 | 1,500 | 3,500 | NIL | NIL | 1,250 ** | 2,250 |
The above examples are assuming 25% depreciation on all items in the
given years.
Further calculations would be necessary for different levels of depreciation
on different items, however, the principles would remain the same.
SALES LEDGER
Invoices
Credits
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CASH BOOK
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Accounting for VAT
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NOMINAL LEDGER
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