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DEPRECIATION

E-LEARNING COURSE: ACCOUNTING & FINANCES

DEPRECIATION

THANK YOU FOR YOUR INTEREST!!!!

Yes, a year has gone by.

Does this have any impact on the company that you might have overlooked and should now be recorded?

Let’s have a better look at this issue…

DEPRECIATION

Jan. 01, 2012

The passing of time...…also affects what things a company has… Because things are used they wear out...

Dec. 31, 2012

1 YEAR!!!

Building (warehouse and office space)

Equipment

Furniture

Assets in use during 2012

Deeds and incorporation

STRAIGHTFORWARD, right? But...

How long will assets last?

How is this event converted into EUR?

How is this “wearing out” recorded in accounting terms?

DEPRECIATION

You buy it on Jan. 01, 2012 for €1,000

Let’s look at an example: A computer

Time passes... 5 YEARS

OUT

Its value after 5 years €0

ANCPN

AC

PNC

PC

Computer

ANCPN

AC

PNC

PC

ComputerX

5 years

How does this happen?

Compra

Año 1 Año 2 Año 3 Año 4 Año 50 €

200 €

400 €

600 €

800 €

1,000 €

1,200 €

All in year 1, nothing in subsequent years

Compra

Año 1 Año 2 Año 3 Año 4 Año 50 €

200 €

400 €

600 €

800 €

1,000 €

1,200 €

All in year 5, nothing in previous years

Spread throughout the 5 years at €240 each year

Compra

Año 1 Año 2 Año 3 Año 4 Año 50 €

200 €

400 €

600 €

800 €

1,000 €

1,200 €

Year 1 2 3 4 5

Year 1 2 3 4 5Year 1 2 3 4 5

DEPRECIATION

You buy it on Jan. 01, 2012 for

€1,000

We would naturally… “spread it throughout the 5 years” so long as intensity of use is similar…

Time passes... 5 YEARS

OUT

Its value after 5 years €0

NCANE

CA

NCL

CL

Computer

NCANE

CA

NCL

CL

ComputerX

All spread throughout the years at €240 each year

Compra

Año 1 Año 2 Año 3 Año 4 Año 50 €

200 €

400 €

600 €

800 €

1,000 €

1,200 €

In accounting, this is calledDEPRECIATION

Year 1 2 3 4 5

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012