And then divide the remaining depreciable cost with the remaining useful life to determine the revised depreciation. The company can calculate the revised depreciation by determining the remaining depreciable cost with the formula of deducting the accumulated depreciation and salvage value at the revision date from the original cost of the fixed asset. Hence, the effect of adjustment that comes from the revised depreciation will apply prospectively in financial statements. This is due to revised depreciation is considered as the change in accounting estimate, not the change in accounting policy. Revised depreciation will not affect the previous depreciation even though the depreciation made was based on the wrong estimation. In this case, the company may need to calculate the revised depreciation by changing its useful life or salvage value and make the journal entry for the revised depreciation in the current and future period. The original value in the asset accounts at cost does not change.Ī business makes a General Journal entry to account for the depreciation of its Motor Vehicles $1,500.As the depreciation is calculated based on the estimation in the accounting process, the company may find that the depreciation made is too low or too high which results in the carrying value of its fixed assets not reflect the actual net realizable value. The accumulated depreciation asset accounts will always have a negative balance to show a reduction in the value of the asset. Credit the accumulated depreciation asset accounts and debit the depreciation expense account. Once you have your depreciation figures (consult your accountant), you need to record a General journal entry. How do I enter depreciation transactions? Step 3 - Create the depreciation expense account Step 2 - Create the corresponding accumulated depreciation account As such, it sets up a motor vehicle asset account, its corresponding accumulated depreciation account and the depreciation expense account.
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