Posting Depreciation

This support notes are suitable for:

• ABSS Accounting
• ABSS Premier

Introduction

Your company's assets, such as vehicles and equipment, deteriorate and lose value during the year. Accounting principles and the Tax Office consider this an expense to your business. Consequently, part of the cost of some equipment can be posted as an expense to your company's Profit and Loss Statement, which reduces your taxable income. This support note explains the accounts and transactions involved.

The allocation of the cost of an item over its useful life is called depreciation. There are several methods to calculate depreciation and different rates of depreciation allowed by the Accounting standard.

Consult with your accountant to see if you should be posting depreciation, and if so, the method you should use and the amount that may be claimed.

Note: MYOB accounting software doesn't calculate depreciation, but will allow you to post your depreciation expenses.

What accounts do I need to set up to account for depreciation?

In many cases, you will probably find these accounts have already been created in your data file. If not, you should complete the following steps.

1. Create the relevant non-current asset accounts that are used in your business.
2. For each non-current asset account you should also create a corresponding accumulated depreciation (asset) account. Note: If you wish, you can group each asset and its corresponding depreciation account under a Header account.
3. Create an Expense account called ‘Depreciation Expense‘.

Example

A news agency uses a motor vehicle for delivering its newspapers. As such, it sets up a motor vehicle asset account, its corresponding accumulated depreciation account and the depreciation expense account.

Step 1 - Create the non-current asset

Step 2 - Create the corresponding accumulated depreciation account

Step 3 - Create the depreciation expense account

How do I enter depreciation transactions?

Once you have your depreciation figures (consult your accountant), you need to record a General journal entry. Credit the accumulated depreciation asset accounts and debit the depreciation expense account. The accumulated depreciation asset accounts will always have a negative balance to show a reduction in the value of the asset. The original value in the asset accounts at cost does not change.

Example

A business makes a General Journal entry to account for the depreciation of its Motor Vehicles $1,500.