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What is the accounting treatment for depreciation in the final accounts?

Practice Questions

Q1
What is the accounting treatment for depreciation in the final accounts?
  1. It is added to the asset value
  2. It is deducted from the asset value
  3. It is recorded as a liability
  4. It is ignored in the final accounts

Questions & Step-by-Step Solutions

What is the accounting treatment for depreciation in the final accounts?
  • Step 1: Understand that depreciation is the reduction in value of an asset over time.
  • Step 2: Identify the asset that is being depreciated (e.g., machinery, vehicles).
  • Step 3: Calculate the amount of depreciation for the accounting period using a method (like straight-line or declining balance).
  • Step 4: Deduct the calculated depreciation amount from the original value of the asset in the final accounts.
  • Step 5: Record the depreciation expense in the income statement to reflect the cost of using the asset.
  • Step 6: Update the asset's book value on the balance sheet to show its reduced value after accounting for depreciation.
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