When we think “depreciation”, we define it as reflecting on consuming future economic benefits arising from the asset. However, depreciation of an asset nonetheless begins when it’s available for use, that is, it is in the condition and location which are necessary for the asset to operate as intended. If you think about it, we cannot talk about economic benefits if the asset is still in store, can we? Continue reading
Author Archives: Karl
Different methods for depreciating assets
There are different types of depreciation methods used. IAS 16 for an example mentions the following methods: Continue reading
Depreciation
In essence, what does this “depreciation of property, plant and equipment” mean? IAS 16 defines depreciation as “systematic allocation of the depreciable amount of an asset over its useful life”. For easier understanding I think it’s important to tear the definition into pieces – systematic allocation, depreciable amount and useful life. Continue reading
Recognizing collection of receivables
It’s one thing to recognize a sales receivable (note that it’s yet to be received) and another to account for the actual collection (received this “something to be received”. That’s what makes me most happy – its real money received and an asset the company can use for either buying new goods, make investments or pay salaries. In my personal opinion collecting receivables should be number one priority in every company. Continue reading
Recognizing sales revenue over a longer period of time
There are occasions when sales are in essence services provided over a longer period of time. This “time” can be defined either by subprojects within the service itself or straight-line period, e.g. from 1 January until 31 December. When the service is in fact comprising of subservices, you ought to apply something called a “percentage of completion” method, however when it’s the latter, the method for recognizing revenue is clearer and requires less complicated estimates. Continue reading
When should a sale be recognized over a longer period of time?
Something that’s important to understand is that there are times when sales revenue is not a one-off transaction, but rather a stream that should be recognized over a period the agreement is in force or the service is being provided. Continue reading
Recognizing a vacation reserve
In most countries the employees are entitled to a time off that’s to be paid by you as the employer (it’s your liability until you’ve paid what you owe). This “time off” is normally called as a vacation and as mentioned, within the company’s books this is a liability. Accounting for this liability, a reserve if you may, can be achieved two ways: Continue reading