### Cambridge IGCSE Accounting(0452)/O Level Principles of Accounts(7110) Notes: Double entry for depreciation example

• Here we will assume that you have read
• The topic about the rationale behind depreciation
• The topic about the methods of calculating depreciation
• The entries required to record depreciation in the books
• If not you should click on each of the above links and familiarize yourself with the topics
• We will now look at a worked example to demonstrate the concepts set out in these topics

A company maintains its fixed assets at cost. Depreciation provision accounts, one for each type of asset, are in use. Machinery is to be depreciated at the rate of 15% per annum, and fixtures at the rate of 5% per annum, using the reducing balance method. Depreciation is to be calculated on assets in existence at the end of each year, giving a full yearâ€™s depreciation even though the asset was bought part of the way through the year. The following transactions in
assets have taken place:

#### 20X5

1. 1 January Bought machinery \$2,800, fixtures \$290
2. 1 July Bought fixtures \$620

#### 20X6

1. 1 October Bought machinery \$3,500
2. 1 December Bought fixtures \$130

The financial year end of the business is 31 December.

You are to show:

1. The machinery account
2. The fixtures account
3. The two separate provision for depreciation accounts
4. The fixed assets section of the statement of financial position at the end of each year, for the years ended 31 December 20X5 and 20X6.

#### Solution

Here are the asset accounts:

 Machinery Account 20x5 20x5 Date Details Amount(\$) Date Details Amount(\$) 1 January Cash/Bank 2800 31 December Balance c/d 2800 20x6 20x6 1 January Balance b/d 2800 31 December Balance c/d 6300 1 October Cash/Bank 3500 6300 6300 Fixtures Account 20x5 20x5 Date Details Amount(\$) Date Details Amount(\$) 1 January Cash/Bank 290 31 December Balance c/d 910 1 July Cash/Bank 620 6300 6300 20x6 20x6 1 January Balance b/d 910 31 December Balance c/d 1040 1 December Cash/Bank 130 1040 1040

Here are the two depreciation accounts:

 Machinery Accumulated Depreciation Account 20x5 20x5 Date Details Amount(\$) Date Details Amount(\$) 31 December Balance c/d 420 31 December Profit and Loss 420 20x6 20x6 31 December Balance c/d 1302 1 January Balance b/d 420 31 December Profit and Loss 882 1302 1302 Fixtures Accumulated Depreciation Account 20x5 20x5 Date Details Amount(\$) Date Details Amount(\$) 31 December Balance c/d 46 31 December Profit and Loss 46 20x6 20x6 31 December Balance c/d 96 1 January Balance b/d 46 31 December Profit and Loss 50 96 96

The two financial statement extracts

 20x5 Fixed Assets Cost Accumulated Depriciation Net Book Value Machinery 2800 (420) 2380 Fixtures 910 (46) 864 3710 (466) 3244 20x6 Fixed Assets Cost Accumulated Net Book Value Machinery 6300 (1302) 4998 Fixtures 1040 (96) 944 7340 (1398) 5942/p>

Where appropriate we have taken the liberty of rounding up the numbers to the nearest dollar. A \$0.5 difference is unlikely to be material. Because of double entry the accounts will still balance at the end of the period even if we do this. Care should be taken to ensure this rounding is carried out on both sides.

To access more topics go to the Principles of Accounting Notes.