Depreciation of Non Current Assets

Depreciation is the expense associated with the consumption or loss of service potential or loss of future economic benefit embodied in a non-current asset. It is the lessening in value of an asset through the passing of time and/or wear and tear from its use.

There are three aspects to depreciation:

Method of Depreciation

The method of depreciation to be used by sites is the Straight-Line method. This method allocates the same amount of depreciation every year over the useful life of the asset.

It is calculated by dividing the original cost of the asset less the estimated residual value (if any) by the estimated useful life of the asset.

Each year, an amount of depreciation will be calculated for each non-current asset. The amount of depreciation for a particular year is considered an expense in that year and is shown in the Profit & Loss Statement as an expense (e.g. Depreciation - Tractor). The accumulated depreciation ledger account is also updated to reflect the total amount of depreciation to date. The amount of accumulated depreciation is shown in the Balance Sheet.

Residual Balance

The only asset class that uses a residual value is motor vehicles (including cars, buses, tractors and motor bikes), which is calculated as 10% of the GST exclusive cost. All other non-current assets are depreciated over the useful life to a nil written down value.

Part-Year Depreciation

If an asset is acquired and/or disposed during the current year, depreciation is calculated on completed months held in that financial year.

Depreciation Calculation Spreadsheet

The Depreciation Calculation Spreadsheet provides a facility to quickly determine the amount of depreciation that should be charged against non current assets. The spreadsheet should be saved to the Finance SSO's computer for easy access.

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