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What is the accounting treatment for depreciation in the final accounts of a sol
What is the accounting treatment for depreciation in the final accounts of a sole trader?
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What is the accounting treatment for depreciation in the final accounts of a sole trader?
It is added to the asset value
It is deducted from the asset value
It is recorded as a liability
It is ignored
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Depreciation is deducted from the asset value to reflect the reduction in value over time.
Questions & Step-by-step Solutions
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Q
Q: What is the accounting treatment for depreciation in the final accounts of a sole trader?
Solution:
Depreciation is deducted from the asset value to reflect the reduction in value over time.
Steps: 6
Show Steps
Step 1: Understand that depreciation is the reduction in value of an asset over time.
Step 2: Identify the assets owned by the sole trader that will depreciate, such as equipment or vehicles.
Step 3: Calculate the amount of depreciation for each asset using a method like straight-line or reducing balance.
Step 4: Deduct the calculated depreciation from the original value of the asset to get the book value.
Step 5: Record the depreciation expense in the income statement to show it as a cost of doing business.
Step 6: Update the balance sheet to reflect the new book value of the asset after depreciation.
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