Depreciation

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Ajay Singh Bhati (Querist)
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09 May 2012 Dear Members,

I have just join a manufacturing company in Ethiopia. Here I looked last year's balance sheet which ended on 31-12-11.

I the Annexures of Calculation of Fixed Assets after deducting Depreciation, the Auditor's mentioned as following:

"FA are stated at cost less accumulated depreciation> Except for the Depreciation of building which is calculated on straight line method; Depreciation of all other assets is charged as per a % of net book value at the following rates per annum:

Buildings - 5%
Plant & Machine - 20%
Motor Vehicles - 20%
Furniture & Fixture - 20%
Office Equipments - 20%
Computes & Printers - 25%

The table of depreciation they provided is as follows:

Fixed Asset - Balance as on 01-01-11 - Addition - Balance as on 31-12-11

Building - 2747815 - 0 - 2747815
Plant & Machine - 9089227 - 1144233 - 10233460
Motor Vehicle - 2413230 - 0 - 2413230
Furniture - 148080 - 19067 - 167147
Office Equipment - 139640 - 236671 - 376310
Computers & Printers - 124272 - 159402 - 283674
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TOTAL - 14677854 - 2652968 - 17330821
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The Depreciation provided as under:

Building - 227509 - 137391 - 364900
Plant & Machine - 2368767 - 1572939 - 3941706
Motor Vehicle - 675659 - 347514 - 1023173
Furniture - 37566 - 25916 - 63482
Office Equipment - 39940 - 67274 - 107214
Computers & Printers - 37897 - 61444 - 99341

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TOTAL - 3387337 - 2212478 - 5599815
=====================================

NET BOOK VALUE - 11290516 - 0 - 11731006

Can you please suggest how this depreciation was calculated.

Thank you

Ajay Singh

CA SURENDRA KUMAR RAKHECHA

CA SURENDRA KUMAR RAKHECHA (Expert)
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10 May 2012 Thanks Mr. Ajay Singh for such a "nice" query.
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I am also waiting for a "healthy" reply for a "lengthy" query.
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Right now; I can provide you only "working notes" :
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For each asset; the depreciation is calculated on the basis of number of days it was used for the business during the year as per applicable depreciation rate.
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Please "type" all such calculations to make the "checking" possible.
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CA Mayank Chopra

CA Mayank Chopra (Expert)
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11 May 2012 Dear Ajay

As per FA policy described by you it tell two things:

1) Building to by depreciated on SLM basis @ 5% i.e. you have to compute depreciation on Gross purchase value of building which is 2747815 x 5% = 137391

2) For other assets you have to follow WDV method i.e. to calculate depreciation on Net Value. In the case of Motor Vehicle it will be:
Gross Value 2413230
Less: Acc Depreciation -675659
Net Value 1737571

Depreciation = 1737571 x 20% = 347514

Note:

1) For the opening balances calculate depreciation for full year (365 days)

2) For new additions (new assets), you have to calculate depreciation by applying rate to the Gross Value or net value as the case may, subject to number of days for which new asset has been put to use.

Hope you understood.

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Ajay Singh Bhati

Ajay Singh Bhati (Querist)
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11 May 2012 Thank you very much Sirs,

Ofcourse I do understand the calculation and points..

Thanks again..

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