December 2024

The Machine Hour Method is a depreciation technique that allocates an asset’s cost based on actual usage rather than time. Instead of charging a fixed depreciation amount each year, this method calculates depreciation based on the number of hours a machine is used. This ensures a fairer distribution of expenses, particularly in businesses that rely on machinery for production. Below is a detailed example of how to calculate and record depreciation using the Machine Hour Method.… Read more

The Machine Hour Method is a production-based depreciation technique that allocates an asset’s cost according to how intensely it is used. Unlike time-based methods such as Straight-Line or Reducing Balance, the Machine Hour Method links depreciation directly to output capacity. This makes it particularly suitable for manufacturing environments, engineering workshops, mining operations, printing presses, textile mills, and any industry where machine productivity determines economic benefit. Under IAS 16 Property, Plant and Equipment, depreciation must reflect the pattern in which the asset’s future economic benefits are consumed.… Read more

The Reducing Balance Method (also called the Declining Balance Method) is one of the most widely used accelerated depreciation techniques across global accounting systems. Unlike the Straight-Line Method — which spreads asset costs evenly across years — the Reducing Balance Method applies a consistent depreciation rate to the asset’s diminishing book value. This naturally results in higher depreciation in the early years and lower depreciation in later years, providing a more realistic representation for assets that lose economic value rapidly.… Read more

Businesses rarely purchase all their fixed assets at the beginning of a financial year. Instead, acquisitions often occur gradually — due to operational demands, machinery failure, expansion projects, or strategic investment decisions. When an asset is acquired mid-year, accountants must ensure that depreciation is allocated fairly and accurately. Incorrect depreciation can distort profit, inflate expenses, or misrepresent asset values on the balance sheet. Therefore, prorated depreciation is not merely a calculation; it is a compliance requirement under both IFRS and GAAP, and a crucial component of reliable financial reporting.… Read more

When a business acquires an asset partway through an accounting period, it cannot simply apply full-year depreciation. Instead, the depreciation must be prorated so that only the portion of the year in which the asset was actually available for use is expensed. This ensures financial accuracy, prevents overstating depreciation, and aligns with global accounting standards such as IFRS and U.S. GAAP. This expanded article provides a comprehensive explanation of partial-year depreciation, formulas, IFRS references, GAAP comparisons, examples, journal entries, schedules, and real-world business implications.… Read more

The Straight-Line Method is the most widely used method of depreciation in accounting. Its simplicity, predictability, and compliance with major accounting frameworks—such as IFRS (IAS 16 Property, Plant and Equipment) and U.S. GAAP (ASC 360 Property, Plant, and Equipment)—make it the default choice for many businesses across industries. The method spreads an asset’s depreciable cost evenly over its useful life, offering consistency in financial reporting, budgeting, and tax planning. This expanded guide explains not just how the Straight-Line Method works, but also why it is preferred, how it compares globally, and how businesses use it in real financial decision-making.… Read more

Depreciation is one of the most important concepts in financial accounting and corporate reporting. It determines how the cost of long-term assets—such as buildings, machinery, vehicles, and technology—is allocated over the periods in which those assets generate economic benefits. Because not all assets lose value in the same way, businesses must choose from several depreciation methods, each designed to reflect a different pattern of asset consumption. Selecting the correct depreciation method not only affects the income statement and balance sheet, but also has implications for taxation, asset management, budgeting, and investment planning.… Read more

Depreciation is an essential accounting concept that helps businesses allocate the cost of fixed assets over their useful lives. Since assets lose value due to wear and tear, usage, and obsolescence, businesses must systematically account for this reduction to ensure accurate financial reporting. This article explores how depreciation is recorded in the accounts of a business, its financial impact, and key considerations. The discussion also expands on practical applications, compliance requirements, industry examples, tax implications, and best practices to ensure businesses fully understand how depreciation influences financial decision-making.… Read more

Depreciation is one of the most fundamental concepts in accounting, especially for businesses that own long-term tangible assets such as machinery, buildings, vehicles, and office equipment. Since these assets provide benefits over multiple accounting periods, it would be misleading to expense their full cost in the year of purchase. Instead, depreciation spreads the cost over the asset’s useful life, ensuring that financial statements present a fair and realistic representation of asset value and business performance.… Read more

Fixed assets are long-term tangible assets used in business operations, such as buildings, machinery, and vehicles. Over time, these assets undergo depreciation, revaluation, or disposal based on their condition and business needs. Proper accounting for these changes ensures accurate financial reporting and asset management. This article explores the concepts of depreciation, revaluation, and disposal of fixed assets. 1. Understanding Fixed Assets Definition Fixed assets are physical assets acquired for long-term use and not intended for resale.… Read more