Depreciation of fixed assets.

Depreciation

Fixed assets are used again and again over a long period of time. During this time the value of many assets falls. This is called depreciation. Each accountants must work how much depreciation to allow each fixed assets. This can then be used in the balance sheet and profit and loss account.

The balance sheet will show the book value the book value of assets. This is their original value minus depreciation. Depreciation is shown in the profit and loss account under expenses. This indicates that part of the original value is ‘used up’ each year. Eventually the entire value of the assets will appear as expenses, when the assets depreciate fully. This process of reducing the original value by the amount of depreciation is known as writing off.

There are good reasons why a firm should allow for depreciation each year in its accounts-:

If it dose ...

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Peer Reviews

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danielbeal

5th of Apr 2012

Quality of writing

The writing style is basic. The student doesn't attempt to use words which are more difficult, and this shows the exmainer that there are unwilling to use some of the technical terms which are expected for high marks.

Level of analysis

The report states that fixed assets lose value over time. However there haven't explained why this occurs. I understand that this may be 'common sense', although this is worth placing within the report. The report could include 'Deprecation occurs, due to the amount paid for the item is less than the asset sale price, which can be achieved if the buisness were to sell the asset. This is due to the asset has occurred wear and tear, and this decreases the value of this item. Thus, by the de-valuing of the asset, this is an expense of the buisness and should be included on the Profit And Loss Account'.

Response to question

In summary, the student has written a clear report. The report states what deprecation is and how this is applied to fixed assets within the buisness. However the report doesn't state how some assets may increase. In addition, the report could include an example of an Profit And Loss Account and Balance Sheet which has Deprecation. The student clearly understands that assets will lose value over a certain time length. In addition, the student understands that the asset will be worth nothing, if the buisness keeps the asset for as long as the asset is worth something. However the student hasn't considered assets, which increase in value, such as buildings. Buildings, such as Stores, Warehouses and Offices may increase in time, and this will need updating on the Balance Sheet to present the new value of the business.

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