18.6. Accounting Treatment of Depreciation

Try these first

1. 1.

   What account is debited when depreciation is charged directly?

   Hint

   Think of the name of the expense account.

2. 2.

   What does the Provision for Depreciation account represent?

   Hint

   Consider the purpose of holding provisions.

3. 3.

   What is charged directly to the asset account when depreciation is recorded?

   • Cost of land
   • Depreciation A/c
   • Profit & Loss A/c

   Hint

   Think about what expense is recognized.

4. 4.

   True or False: Provision for Depreciation is used to increase asset values.

   • True
   • False

   Hint

   What is the purpose of setting aside provisions?

5. 5.

   A company bought equipment for $12,000 with a residual value of$2,000 and a useful life of 4 years. Prepare the journal entries for the first year using the straight-line method.

   Hint

   Use the straight-line method to calculate annual depreciation first.

6. 6.

   Explain why an organization might prefer to use a provision for depreciation rather than charging it directly.

   Hint

   Consider the implications of financial health in accounting practices.