help for depreciation

help for depreciation

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Hi there.

I have started doing the accounts for a ltd company, all the year end have been prepared but the owner is not happy with the balance on his assets and how much they have depreciated, some of them have been depreciated the same amount for the past 2-3 years 20 -25%. He said some of the assests are still valued at the same as what he paid for them. 

Q 1 can the depreciation amounts be changed to say 10%

Q2 can the assests be revalued and increased on the balance sheet if so what would the journal entries be?

Many Thanks

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By sylou
03rd Apr 2013 16:09

A partial answer for you

There is no problem with changing the rate of depreciation if the director believes the rate currently charged is too high.

However depreciation is provided 'to write off the asset over its useful life', not to write it down to what it's now worth.  It sounds to me that he wants the balance sheet to show the market value of the assets, which is not necessarily correct.  If it was decided that the assets would last 4-5 years, then 20-25% would be correct depreciation rate, even if the assets are currrently still worth more than their written down value.

 

Thanks (1)
By Democratus
03rd Apr 2013 16:50

depends on your depreciation method

You can depreciate the assets over the useful life with an expected disposal value built in so the asset shouldn't drop below market value.

 

If you revalue then the increase in value will be a STRGL movement rather than a profit increase and can only be recognised in the P&L when the asset is sold on.

Dr FIXED ASSETS

Cr REVALUATION RESERVE

Thanks (1)