Where is provision for depreciation recorded

This account will continue to show a debit equal to the cost of the fixed asset concerned. The only entries that will be made in the fixed asset account will be in respect of fresh purchases or sales of the asset concerned. Although one depreciation account is enough to accommodate the depreciation expense on all fixed assets for the year, a separate provision for the depreciation account must be maintained for each fixed asset account.

If a fixed asset is recorded using the revaluation approach for calculating depreciation, it is usually not necessary or beneficial to maintain a separate provision for depreciation account for it. For such assets, the treatment shown on the revaluation method is sufficient i.

Required: Show the relevant ledger accounts for the years , , and Keeping a separate provision for depreciation account for each fixed asset offers the following advantages:. As no entry is made in the fixed asset account, it continues to show the historical cost of the asset. The historical cost of a fixed asset is needed for a number of reasons, such as computing depreciation using the fixed installment method also known as the straight line method or the payment of rates and taxes.

A separate provision for depreciation account ensures that the total accumulated depreciation is always known for each fixed asset. It also provides an idea about the age of the fixed assets that are held. When fixed assets are revalued for whatever reason , it is always helpful to know both the original cost and accumulated depreciation of each fixed asset.

This is calculated in a simple way by dividing the value or cost of the asset at the beginning of its life, and then dividing that amount by the number of years it is expected to be useful.

If there is a salvage or residual value at the end of its life, then this number is lowered from the initial value number before dividing by the years. More accelerated types of depreciation schedules can also be used, such as the double-declining balance method DDB and the sum-of-years-digit method SOYD. The DDB method causes much higher depreciation provisions in earlier years to reflect the fact that most assets are more valuable when they are new.

Other methods include using the actual production volumes of an asset each year divided by the total years that it is expected to be productive. For example, the amount of oil coming out of an oil field asset divided by the total number of production years might be utilized to make a provision. In one book I have seen that prov.

Is matching. This post was really interesting, especially because I was investigating for thoughts on this matter last Friday. In comment, you can give your feedback, reviews, ideas for improving content or ask question relating to written content. Start your studies. Provision of depreciation account is the account of provision of depreciation. First of all we should understand provision of depreciation. Provision of depreciation is the collected value of all depreciation.

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