Property, Plant & Equipment: Q3

Q3: What do you think depreciation is?

A:

Depreciation is the word we give to the process of allocating the cost (or value) of an item of Property, plant and equipment to the benefit it provides to a firm in generating revenue each year:

“Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life.”

AASB 116 para 6

And depreciable amount is defined as:

“Depreciable amount is the cost of an asset, or other amount substituted for cost, less its residual value.”

AASB 116 para 6

A key thing to remember is that depreciation is the process of turning an asset (item of Property, plant and equipment) into an expense each year.

Study Guide Chap 5 page 5-7.

Advertisements