When fixed assets are purchased, they are recorded on a fixed asset register

Date purchased

Description of asset

Purchase amount

Location

Useful life

At the month-end, the register must be reviewed, to identify:

Lost or stolen assets

Obsolete or broken assets

Qs: Why is knowing the date purchased important? Why is knowing the useful life important?

Test your knowledge

A company purchased a computer for 275,000 on April 20, 2022.  The computer has a useful life of 4 years at which point it will not have any value.

At December 31, 2022, how much depreciation expense would be recorded? What is the net book value of the computer?

         Use Excel to make an accurate calculation!

Qs: a couple students to answer each, to check for differing answers

Answer:

275,000 / 4 = 68,750

68,750/12=5,729

Note:

April 20 To Dec 31= 8 Moths plus 11 Days

Then:

5,729/30=190.9

5,729*8=45,832

190.9*11=2,099.9

Total Ann. Depreciation= 45,832+2,099.9=47,932

NBV=275,000-47,932=227,068

Depreciation must be calculated and posted to record the use of these fixed assets

This calculation will differ at each company and for each asset type

The most common method is straight-line, where the asset is depreciated the same amount each month over the time the asset is used

Once posted, the TB must be reconciled to the fixed asset register

As a junior accountant, you may be responsible for the calculation and the posting of the depreciation entries.

You may also be responsible for reviewing the register and ensuring all assets listed are still in the company’s possession (fixed asset audit).