Depreciation can be described as a decline in the registered cost of a specific asset in a methodical manner. It will continue to decline till the value of the asset turns zero or insignificant for tax return Australia. The fixed assets may include building, office machinery, furniture, etc. Among the various assets, the land has emerged as the only exemption that will not be depreciated. It is because the value of land is appreciated with time. The ATO has provided three methods of calculating depreciation. It may include a straight-line method, unit of production method, and double-declining balance method.
Given below are some key points about depreciation:
It can be described as the aggregate amount of a plant asset’s price that has been assigned to depreciation expense. It is calculated right from the period when the asset was put into service. Accumulated depreciation and associated depreciation expenditure are linked with constructed assets. It may include buildings, machinery, office machinery, furniture, vehicles among others. Accumulated depreciation is also called as the title of the contra asset account. It is important to note that accumulated depreciation get credited when depreciation expenditure gets debited each accounting period. When accumulated depreciation is subtracted from an asset’s cost, it may result in the assets’ book value or carrying value. Therefore, the credit balance in the account accumulated depreciation will never exceed the debit balance in the associated asset account. Quantity surveyors have expertise in preparing depreciation schedule.
An Instance of Accumulated Depreciation:
It can be clarified with an example. Let’s suppose that a company happens to buy a delivery vehicle for the price of $50,000. And, the company fixes the depreciation expense at $9000 for 5 years. Every year the account Accumulated Depreciation will begin to get credited for $9000. As it is considered a balance sheet account, its balance will continue to accumulate. And, after the tenure of three years, the balance in Accumulated Depreciation will be a credit balance of $27,000. Meanwhile, the vehicle’s book value will become $23,000 (The credit balance will be subtracted from the vehicle cost). In case you find it difficult to comprehend the Australian tax return, you may hire professionals to calculate tax and seek depreciation claims.
What happens if the vehicle is sold?
It is worth noting that an asset’s book value will not reflect the vehicle’s market value. It is because depreciation is just a method of allocation. And, in case the vehicle is sold, both the vehicle’s price and its accumulated depreciation at the sale’s date will be eliminated from the accounts. In the situation when the amount received is more than the book value, a profit will be registered. And, in the situation when the amount received will be less than the book value, a loss will be registered.
You need to prepare your property report effectively in order to maximize your depreciation claims. And, depreciation has emerged as a significant part of accounting records. It assists organizations in maintaining their income statement and balance sheet in the right manner with correct profits registered. You may hire a professional to assist you to register the depreciation in the right way. It will help in eliminating manual errors as well.