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Leaving Certificate Accounting Notes: Depreciation

Updated: Nov 23

Keywords: Leaving Certificate study notes, Leaving Certificate Accounting notes, Depreciation Notes, Accounting Study Guide, Depreciation Methods, Exam Preparation, Asset Depreciation, Straight-Line Depreciation, Reducing Balance Method, Accounting Concepts, Irish Leaving Cert.

Key Lessons: Leaving Certificate Accounting Notes – Depreciation

  • What is Depreciation?: Depreciation is the reduction in value of a fixed asset over its useful life due to wear and tear, passage of time, obsolescence, or extraction. It is an expense recorded in the income statement to match the cost of the asset with the periods that benefit from its use.

  • Importance of Charging Depreciation: Depreciation ensures that financial statements reflect a true and fair view of the business. Without depreciation:

    • Profits would be overstated.

    • Net worth on the balance sheet would be inaccurate.

  • Methods of Depreciation

  • Straight-Line Method: Spreads the cost evenly over the asset’s life, ideal for assets like buildings that lose value gradually.

  • Reducing Balance Method: Applies a percentage to the asset’s decreasing value each year, suitable for assets like vehicles and computers that lose value quickly.

  • Factors Affecting Depreciation PolicyWhen setting depreciation, businesses consider:

    • Type and cost of the asset.

    • Estimated useful life.

    • Scrap value at the end of its life.

    • Chosen depreciation method.

  • Depreciation and the Matching Concept: Depreciation exemplifies the matching concept by ensuring the cost of an asset is allocated to the periods that benefit from its use, improving the accuracy of profit calculations.


Important Takeaways: Leaving Certificate Accounting – Depreciation

  • Definition of Depreciation: Depreciation measures the loss in value of a fixed asset over its useful life due to wear and tear, time, obsolescence, or extraction. It ensures the accurate representation of asset values in financial statements.

  • Why Depreciation is Charged: Depreciation is essential for calculating profit correctly. Without it, profits and net assets would be overstated, leading to financial statements that do not show a true and fair view.

  • Methods of Depreciation

    • Straight-Line Method: Spreads the asset's cost evenly over its useful life, ideal for assets like buildings that lose value slowly.

    • Reducing Balance Method: Depreciates a fixed percentage of the asset's remaining value each year, suitable for assets like vehicles or computers that lose value rapidly.

  • Factors Affecting Depreciation: Key considerations include the asset’s cost, estimated useful life, expected scrap value, and the chosen depreciation method.

  • The Matching Concept: Depreciation reflects the matching concept by allocating the cost of an asset to the periods that benefit from its use, aligning expenses with revenues for accurate profit reporting.

Keywords: Leaving Certificate study notes, Leaving Certificate Accounting notes, Depreciation Notes, Accounting Study Guide, Depreciation Methods, Exam Preparation, Asset Depreciation, Straight-Line Depreciation, Reducing Balance Method, Accounting Concepts, Irish Leaving Cert.

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