Depreciation - Definition and explanations Merit/Excellence questions

What does Depreciation not do?

Depreciation DOES NOT provide an estimate of the current value of the asset - neither its market value nor its replacement value.

Kids Cuts has office equipment that cost it $3000 to purchase. Fully explain, using the definition of depreciation, why the office equipment is depreciated every year by $500.

Depreciation is the systematic allocation of the Depreciable Amount of an Asset over it's useful life. The purchase cost therefore needs to be spread over the Accounting periods during which the asset is used. Kids Cuts has allocated the cost of the office equipment ($3 000) over its useful life of six years so has depreciated it by $500 per year.

North Dental $4000 X-ray machine should last for five years. It will be depreciated annually by NZ$800. Fully explain, using the definition of depreciation, why the X-ray machine is depreciated every year.

Depreciation is the systematic allocation of the Depreciable Amount of an Asset over it's useful life. The purchase cost therefore needs to be spread over the Accounting periods during which the asset is used. North Dental has allocated the cost of the X-ray machine ($4 000) over its useful life of five years so has depreciated it by $800 per year.

Define Depreciation

Depreciation is the systematic allocation of the depreciable amount of an asset over it's useful life.

Kids Cuts is owned by Rebecca. Kids Cuts depreciates its Office Equipment by $500 a year. Explain why depreciation on the Office Equipment is an expense?.

There is a decrease in Equity due to a decrease in profit of Kids Cuts. The Equity has not decreased in this example by drawings of the owner Rebecca. (Merit) There is a decrease in Economic Benefit due to a DEPLETION of the asset Office Equipment due to it being used and worn out to generate income for Kids Cuts

North Dental is owned by John. North Dental depreciates its X-Ray machine by $800 a year. Explain why depreciation on the X-Ray machine is an expense?

There is a decrease in Equity due to a decrease in profit of North Dental. The Equity has not decreased in this example by drawings of the owner John. (Merit) There is a decrease in Economic Benefit due to a DEPLETION of the asset the X-Ray machine due to it being used and worn out to generate income for North Dental