Treatment of Depreciation in Profit and Loss Accounts and Balance Sheet

Financial Accounting SSS1 Third Term

WEEK 8

Treatment of Depreciation in Profit and Loss Accounts and Balance Sheet

Performance Objectives

1. Treatment of Depreciation in Profit and Loss Accounts and Balance Sheet

Content

The value of fixed assets reduces after year because of usage and passage of time. It is well known that fixed assets are used for earning revenue. Therefore, a decrease in their value is considered as an expense or loss incurred in earning revenue and like other expenses or losses, is charged to the Profit and Loss Account. Otherwise, profit will be overstated. The value of the fixed asset should also be 'educed by the depreciation amount. It is important to note that depreciation is not…