Advise Ace of the Income Tax consequences arising out of the above information for the 2019 - 2020 Income year assuming Ace is not a small business entity.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
An extract of the Asset Register of Ace Pty Ltd (“Ace”) for the 2018 - 2019 Income year is shown as follows: Asset Cost Opening Adjustable Value Method Effective Life Decline in Value for This Period Closing Adjustable Value Printer 1,200 1,200 Diminishing Value 3 years 400 800 Desks 3,000 2,400 Prime Cost 10 years 300 2,100 Appliances 2,600 1,040 Prime Cost 5 years 520 520 All
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