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Depreciation Print E-mail

  1. Depreciate your working assets, but not land. Take the cost of the asset and deduct the amount you can sell it for after you have finished using it. Choose the number of years you will use it for. Typical office equipment is four years, cars may be three years and buildings are usually 25 years. You have some freedom to decide what is reasonable.

  2. Take the new cost calculated above and divide it into equal amounts over the number of years you have chosen. Deduct this amount from the assets each year until the asset is nil in the balance sheet. The annual amount becomes an administrative expense in your income statement and reduces your net profit.

  3. Your balance sheet will balance because you have adjusted fixed assets and accumulated profit by the same amount.

This can be done in the annual summary under a separate column as follows:

 

Depreciation

Depreciation expense

Net: Income statement

Fixed asset accumulated depreciation

(Net): Balance sheet

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