Re: Calculating Depreciation

desperado98@xxxxxxxxxxxxxx wrote:

On Nov 22, 11:39 am, "desperad...@xxxxxxxxxxxxxx"
<heydude78...@xxxxxxxxxxx> wrote:

That's what I was thinking HOWEVER what threw me was the previous
years accounts (from the same accountant) that had a Cost of 4498 (NBV
of 1624) at the start of the year and new additions of 1304 throughout
the year.

This gives a total of 5802 and 25% of that is 1450.50 - he has a
charge for the year as 948. Even if we take 4498 at 25% at 1304 at 50%
(as it was mentioned that the statement says that it's 50% for new
assets) that is 1124.50 and 652 which is 1776.50.

This is all wrong, as you have meanwhile noticed and noted below.

It looks like maybe they had an asset register that they have basing
their depreciation?

Not necessarily. Perhaps he did use two rates (50% and 25%) last year
but only one rate (25%) this year. He wouldn't have needed an asset
register, just two separate rates for two separate classes of asset.
In particular, if he only applied the 50% rate in year one on some
types of asset (computing equipment perhaps?), and 25% in year one on
all others, but then applied the 25% rate on *all* assets in subsequent
years, then he wouldn't need separate cost and depreciation accounts
for the two classes of asset.

So what we've said is correct and his previous years depreciation
amount (just above) is wrong ? The previous year has the same '-50% on
cost and %25 on cost' statement in the notes.

What I have been doing is trying to work out where the figure comes
from and then refer to the previous years accounts to see if it tallys
- if it doesn't I think I've made a mistake. You can see why I'm
confused.

Something I mean to add to this, again for the previous years
accounts.

If I take 25% of NBV (1624) and 25% of new assets (1304) which is what
I should have been doing rather than talking about cost then we have
25% of 2928 which is 732 and not 948 that is shown.

It works out if the 1304 is divided into two parts of 864 and 440,
and if the 864 is depreciated at 50% (giving 432), the 440 at 25%
(giving 110), and of course the old 1624 also at 25% (giving 406).

406 + 110 + 432 = 948

I didn't pluck 864 and 440 out of the air, but noted that 948 exceeds
732 by 216, and if this extra 216 is to result from £X worth of stuff
being depreciated at 25% more than the rest, then 216 must be 25% of X.
X is hence 864, and 440 is just 1304-864.

Remember that depreciation rates and method (whether straight line or
reducing balance) are a matter of personal preference, so there is no
single "correct" way of doing it. It doesn't affect your tax position,
since depreciation is not an allowable expense. Capital allowances are
used instead.

As Peter has pointed out, straight line depreciation requires an asset
register, but I suggest that maintaining an asset register is more
onerous administratively than just pooling stuff and using reducing
balance. It goes without saying that if you use an asset register for
the purpose of operating straight line depreciation, then you need to
record against each asset in the register how much of its cost has been
depreciated to date, and to update each entry every year.

You need to decide for yourself whether 25% per year is a reasonable
depreciation rate for your equipment, and whether an enhanced year 1
rate of 50% on some stuff is reasonable, or whether it is better to
go for simplicity and apply the same 25% rate throughout.

.

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