Cost of sales - depreciation of fixed assets - asset disposal

Cost of sales (CoS)

the value of goods removed from inventory because they have been sold. Their value is converted from an asset to an expense

inventory

opening stock (value of unsold product from last period carried forward to be sold)

cost of sales calculation:

opening stock + purchases - closing stock

• make sure to deduct returns from revenue and purchases

2 ways to value non -current assets

• historical cost accounting

• fair value

historical cost accounting

non-current assets are valued at their cost less the aggregate/accumulated depreciation from the date of acquisition to the date of the statement of financial position

• assets are reported in the statement of financial position at the NBV (net book value)

net book value

Net book value – how much an asset should be worth currently (estimate)

= cost - accumulated depreciation

depreciation

total amount of value lost in the time the asset has been used 

historical cost

cost the company paid for the asset at the beginning 

the nature of depreciation

Everything that is a tangible non current asset needs to be depreciated except for land and property 

what are the 2 depreciation methods

• straight line method

• reducing balance method

the straight line / fixed instalment method

assume the asset loses the same amount of value each year

= (cost - residual value) / useful economic life

residual value

value at the end of it useful economic value

essential data to compute depreciation

1. historical cost

2. length of the asset’s expected useful economic life

3. estimated residual value of the asset

Depreciation = Net Book Value × Depreciation Rate

the reducing balance method

• expected a big drop and then it shallows

• convex profile (faster depreciation in earlier periods)

• operates by applying depreciation rate to net book value brought forward