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2 nd Year Business Studies

2 nd Year Business Studies. 23 rd January 2013. Depreciation. Depreciation. Depreciation. Depreciation. €225,000. Depreciation. Depreciation is when a fixed asset goes down in value for one of the following reasons: Because it has got older Because it has been used a lot

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2 nd Year Business Studies

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  1. 2nd Year Business Studies 23rd January 2013

  2. Depreciation

  3. Depreciation

  4. Depreciation

  5. Depreciation €225,000

  6. Depreciation • Depreciation is when a fixed asset goes down in value for one of the following reasons: • Because it has got older • Because it has been used a lot • Because it has gone out of date

  7. Depreciation • So what will a firm do to recognise that its fixed assets are decreasing in value? • They reduce the fixed asset value by a certain amount each year. This amount is called Depreciation • Depreciation is usually a percentage of the cost of the fixed asset

  8. Depreciation • E.g. Equipment cost €40,000. It is to be depreciated over 10 years at the rate of 10% of cost. • Step 1: €40,000 X 10% = €4,000 • This is the depreciation expense for the trading, profit & loss account • Step 2: Reduce the value of the fixed asset in the balance sheet by €4,000 • €40,000 - €4,000 = €36,000 • €36,000 is the Net Book Value (NBV)

  9. Balance Sheet

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