Estimating and Recording Depreciation

Abstract

In this chapter we are going to look at the way in which capital expenditure on a fixed asset can be spread over the life of the asset. This is done so that a fair amount of the expense can be recorded each year in the profit and loss account and a truer, more up-to-date valuation of the asset can be shown in the balance sheet. Two methods of book-keeping will be considered because both are encountered in examination questions. Before you begin this chapter you are advised to reread section 3.8 on depreciation in Chapter 3 and section 8.2 on capital expenditure in Chapter 8.