I haven't studied book-keeping since my first semester in college several decades ago. I'm now preparing my accounts for the first trading accounting period of my company. If someone can help clear up a really basic question re depreciation for me I'd be grateful. (Yes, I know that it's Capital Allowance for HMRC rather than depreciation - this is more for the Companies Act accounts than the HMRC ones.)
I'm happy enough with the principles of depreciation and the alternative methods such as straight line, diminishing balance, etc. What I'm not clear on is granularity of time. If I purchased an asset within the accounting period that I'm drawing up, should I apply any depreciation to that asset or should I wait for the next accounting period and simply show the asset at its purchase price with no depreciation this time around? If I should apply depreciation within the purchase period, should I treat differently assets purchased at the start of the period from assets purchased at the end? If so, should I calculate depreciation to the month in which the asset was purchased or to the day?
Or does the detail not matter as long as I explain it in the notes to the accounts? Articles 18-20 of SI 2008/409 (The Small Companies and Groups (Accounts and Directors' Report) Regulations 2008) give some general rules but no detail.
It is acceptable to apply depreciation for a full year in the year of acquisition, or, alternatively you can apply x/12 in the first year for the full months used.
I personally prefer to apply x/12 for first year
Usually no depreciation is applied to the year of disposal, as there will be a loss or gain adjustment, when the asset is sold/ scrapped.
The main thing to consider is consistency. Once you have decided which way to go, then you need to apply that to all assets of that type.
Bill
-- Edited by Wella on Saturday 18th of September 2010 09:59:27 AM
I would agree with Bill and apply the x/12 for the first year. One thing to remember about depreciation is that it is only an estimate. Some people will calculate it to the day, but I don't think this is really necessary.
Bill & Pauline, many thanks for your replies - very helpful. I feel bad having to bother experienced people like yourselves with such basic questions. I don't understand why this sort of information isn't more readily available, but I've searched the Web and even bought a textbook on book keeping and I still had to resort to asking guys like you. Lucky for me such forums exist.
Michael
-- Edited by michael412 on Sunday 19th of September 2010 08:46:08 AM
No problem Michael. I know what you mean about information you need not always being easy to find. Sometimes things are explained in such a complicated manner, when all you really want is a simple answer that you can get your head round!
