Re: Calculating Depreciation

On 22 Nov, 10:07, "desperad...@xxxxxxxxxxxxxx"
<heydude78...@xxxxxxxxxxx> wrote:
On Nov 22, 9:41 am, PeterSaxton <pe...@xxxxxxxxxxxxxxxxx> wrote:





On 22 Nov, 09:11, "desperad...@xxxxxxxxxxxxxx"

<heydude78...@xxxxxxxxxxx> wrote:
On Nov 22, 6:56 am, PeterSaxton <pe...@xxxxxxxxxxxxxxxxx> wrote:

On 22 Nov, 01:28, "desperad...@xxxxxxxxxxxxxx"

<heydude78...@xxxxxxxxxxx> wrote:
Looking at my old end of year accounts, I am trying to understand how
the depreciation has been calculated.

The depreciation is calculated using '-50% on cost and 25% on cost'.

Why are there two rates of depreciation with no explanation of what
they relate to?

The figures I have are:

Cost at year start: £5802
Additions: 542
Total: 6344

Depreciation:
at year start: 3822
charge for year: 631
Total: 4453

NBV:
at year end: 1891
at year start: 1980

I've tried to work out how the figure of £631 was calculated and just
can't. I'm assuming that my accountant did not use a 'useful life' of
the assets as they are all lumped together under plant and machinery.
I have looked all over the net for an explanation and the only one I
get are the straight line and reducing balance method, however neither
give me the figures I want.

From the above figures it is impossible to answer the question. The
assets will have depreciation calculated on an individual basis so
some assets may be fully depreciated already.

Understood. As my accountant did not have a list of assets per se,
just the total figure, I don't think he could have been calculating it
per asset (or if he was it was from his own information). However I
take your point.

Note that I can't ask my accountant.
Why can't you ask your accountant?

After the problem he caused me, we're not on speaking terms.

Any suggestions or even pointers in the right direction?

If you want to know more you would need to ask your accountant for the
calculations.

The alternative would be to redo the calculations from your own
records. The problem you will have is that you have two rates of
depreciation but no way of knowing what assets have which rate.

Why are you wanting to know this information?

I'm going over my final accounts and want to be sure they are correct

I would start from the figures you have been given and depreciate at
25% of cost each year but from now on keep a register of assets. Treat
previous years as one asset.

Trying to do it without a register causes problems.

Say you buy one asset for £1,000 after 4 years cost is £1,000 and
accumulated depreciation is £1,000. You buy another asset for £300 and
if you take 25% of the total cost the net book value will be zero
after one year. If you only depreciate the new asset (the old one is
fully depreciated) then your depreciation will only be £75 rather than
£300.

Therefore, not keeping a register causes you to over depreciate if you
use the straight line basis. I still think the straight line basis is
more reasonable.

Peter

Hi Peter,

One of the problem I have is that I don't have an asset register and
no accountant I've had in the last 6 years of business has ever asked
for one. I suppose they could have their own but it's never been
mentioned. As of today, I will keep a register (and update it for the
start of my financial year). In the asset register (having never kept
one and no knowing if there is a kind of standard template somewhere)
I would have the cost paid, the date purchased, and the depreciation
calculated against it so far (and updated every year) so I know when
it's 'spent' so to speak.

Using the figures I have then and using what you have said, would the
calculation be:

NBV for start of year: 1980
25% of NBV for start of year: 495

I would use 25% of the cost figure not the NBV.

New additions: 542
25% of New additions: 130.5

Yes

Total depreciation: 630.50 (rounded up to 631)

Next year would this be done if I had £1000 of new additions:

Depreciation of 25% for the 1980 mentioned above: 495

As above 25% of cost

Depreciation of 25% for the 542 new additions for last year: 130.50
Depreciation of 25% for new additions of £1000 for this year: 250

Yes

Total: 880.50 (rounded to 881)

So I would treat the 1980 as one whole asset as I don't have any
'asset list' to do otherwise?

Yes. I would treat it as one asset. If you are calculating
depreciation at 25% of cost then it would be fully depreciated pretty
soon.

Another thing to do would be to look at what assets you have left in
the business add up their cost and see whether you should treat any
balance left as disposals and reduce the cost and accumulated
depreciation by this amount rather than continue with the higher
figure - even though the NBV is zero.

This may not be right, but just wanting to check it though.

Thanks for your help. I appreciate it

Depreciation is a pretty arbitary calculation so I wouldnt worry too
much about the past.

Peter
.

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